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Do Corporate Global Environmental Standards in Emerging Markets Create Or Destroy Market Value

Author

Listed:
  • Glen Dowell
  • Stuart Hart
  • Bernard Yeung

Abstract

Arguments can be made on both sides of the question of whether a stringent, global corporate environmental standard represents a competitive asset or liability for multinational enterprises (MNEs) investing in emerging and developing markets. This paper seeks to answer this question by analyzing the global environmental standards of a large sample of US-based MNEs in relation to their market performance. We find that firms adopting a single, stringent global environmental standard have higher market values, as measured by Tobin's q, than firms defaulting to less stringent, or poorly enforced host country standards. Thus, developing countries that use lax environmental regulations to attract foreign direct investment end up attracting poorer quality, and perhaps, less competitive firms. Our results also suggest that externalities are incorporated to a significant extent in firm valuation. We discuss plausible reasons for this observation.

Suggested Citation

  • Glen Dowell & Stuart Hart & Bernard Yeung, 1999. "Do Corporate Global Environmental Standards in Emerging Markets Create Or Destroy Market Value," William Davidson Institute Working Papers Series 259, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:1999-259
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    References listed on IDEAS

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    Cited by:

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    2. David P Angel & Michael T Rock, 2005. "Global Standards and the Environmental Performance of Industry," Environment and Planning A, , vol. 37(11), pages 1903-1918, November.
    3. Ans Kolk & Seb Walhain & Susanne van de Wateringen, 2001. "Environmental reporting by the Fortune Global 250: exploring the influence of nationality and sector," Business Strategy and the Environment, Wiley Blackwell, vol. 10(1), pages 15-28, January.

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    Keywords

    corporate environmental policy; corporate performance; race to the bottom in foreign direct investment;
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