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Do Corporate Global Environmental Standards Create or Destroy Market Value?

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  • Glen Dowell

    ()
    (263 College of Business, University of Notre Dame, Notre Dame, Indiana 46556)

  • Stuart Hart

    ()
    (Kenan-Flagler Business School, University of North Carolina, Chapel Hill, North Carolina 27599)

  • Bernard Yeung

    ()
    (New York University, Stern School of Business, 44 W 4th Street, Room 7/65, New York, New York 10012, and William Davidson Institute, University of Michigan Business School, Ann Arbor, Michigan 48109)

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    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. Analyzing the global environmental standards of a sample of U.S.-based MNEs in relation to their stock market performance, we find that firms adopting a single stringent global environmental standard have much 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 may 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.

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    File URL: http://dx.doi.org/10.1287/mnsc.46.8.1059.12030
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 46 (2000)
    Issue (Month): 8 (August)
    Pages: 1059-1074

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    Handle: RePEc:inm:ormnsc:v:46:y:2000:i:8:p:1059-1074

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    Keywords: direct investment in developing countries; firm value; firm-level environmental policy;

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