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

  • Glen Dowell
  • Stuart Hart
  • Bernard Yeung
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    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.

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    File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp259.pdf
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    Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 259.

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    Length: pages
    Date of creation: 01 Jun 1999
    Date of revision:
    Handle: RePEc:wdi:papers:1999-259
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    1. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
    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. 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.
    4. Grossman, Gene M & Krueger, Alan B, 1995. "Economic Growth and the Environment," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 353-77, May.
    5. Gunnar A. Eskeland & Ann E. Harrison, 2002. "Moving to Greener Pastures? Multinationals and the Pollution Haven Hypothesis," NBER Working Papers 8888, National Bureau of Economic Research, Inc.
    6. Morck, R. & Yeung, B., 1991. "Why Investors Value Multinationality," Working Papers 282, Research Seminar in International Economics, University of Michigan.
    7. Wayne B. Gray & Ronald J. Shadbegian, 1993. "Environmental Regulation and Manufacturing Productivity at the Plant Level," NBER Working Papers 4321, National Bureau of Economic Research, Inc.
    8. Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier.
    9. 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.
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