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Do Corporate Global Environmental Standards Create or Destroy Market Value?

Author

Listed:
  • 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)

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.

Suggested Citation

  • Glen Dowell & Stuart Hart & Bernard Yeung, 2000. "Do Corporate Global Environmental Standards Create or Destroy Market Value?," Management Science, INFORMS, vol. 46(8), pages 1059-1074, August.
  • Handle: RePEc:inm:ormnsc:v:46:y:2000:i:8:p:1059-1074
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    File URL: http://dx.doi.org/10.1287/mnsc.46.8.1059.12030
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    References listed on IDEAS

    as
    1. Morck, Randall & Yeung, Bernard, 1991. "Why Investors Value Multinationality," The Journal of Business, University of Chicago Press, vol. 64(2), pages 165-187, April.
    2. Adam B. Jaffe et al., 1995. "Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 132-163, March.
    3. Gene M. Grossman & Alan B. Krueger, 1995. "Economic Growth and the Environment," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 353-377.
    4. repec:fth:michin:282 is not listed on IDEAS
    5. Lindenberg, Eric B & Ross, Stephen A, 1981. "Tobin's q Ratio and Industrial Organization," The Journal of Business, University of Chicago Press, vol. 54(1), pages 1-32, January.
    6. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    7. Daly, Herman E., 1994. "Fostering environmentally sustainable development: four parting suggestions for the World Bank," Ecological Economics, Elsevier, vol. 10(3), pages 183-187, August.
    8. Robert D. Klassen & Curtis P. McLaughlin, 1996. "The Impact of Environmental Management on Firm Performance," Management Science, INFORMS, vol. 42(8), pages 1199-1214, August.
    9. Morck, Randall & Yeung, Bernard, 1992. "Internalization : An event study test," Journal of International Economics, Elsevier, vol. 33(1-2), pages 41-56, August.
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