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The Effects of Institutional Distance and Headquarters’ Financial Performance on the Generation of Environmental Standards in Multinational Companies

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Abstract

This article combines institutional and resources’ arguments to show that the institutional distance between the home and the host country, and the headquarters’ financial performance have a relevant impact on the environmental standardization decision in multinational companies. Using a sample of 135 multinational companies in three different industries with headquarters and subsidiaries based in the USA, Canada, Mexico, France, and Spain, we find that a high environmental institutional distance between headquarters’ and subsidiaries’ countries deters the standardization of environmental practices. On the other hand, high-profit headquarters are willing to standardize their environmental practices, rather than taking advantage of countries with lax environmental protection to undertake more pollution-intensive activities. Finally, we show that headquarters’ financial performance also imposes a moderating effect on the relationship between environmental institutional distance between countries and environmental standardization within the multinational company.

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Notes

  1. USA: Toxic Release Inventory (TRI); Canada: National Pollution Release Inventory (NPRI); France and Spain: European Pollutant Emission Register (EPER); Mexico: Registro de Emisiones y Transferencia de Contaminantes (RETC).

Abbreviations

CERCLA:

Comprehensive Environmental Response, Compensation and Liability Act

EPER:

European Pollutant Emission Register

ESI:

Environmental Sustainability Index

EU:

European Union

MNC:

Multinational Company

NPRI:

National Pollution Release Inventory

RETC:

Registro de Emisiones y Transferencia de Contaminantes

RQ:

Reportable Quantities

NAFTA:

The North American Free Trade Agreement

TRI:

Toxic Release Inventory

VIF:

Variance inflation factors

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Acknowledgments

This research has been partially funded by grants from the Spanish Ministry of Education and Science (project ECO2010-20483 and programme FPU), and the Andalusia Regional Government (Excellence Research Projects P08-SEJ-0457 and P10-SEJ-6765). We want to thank members of group ISDE of the University of Granada and Henley Business School (University of Reading) for their insightful comments. The two anonymous reviewers of this article have made an excellent contribution in providing useful suggestions and comments.

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  1. Department of Management, School of Economics and Business, University of Granada, Campus Cartuja, s.n., 18071, Granada, Spain

    Javier Aguilera-Caracuel, Juan Alberto Aragón-Correa & Nuria Esther Hurtado-Torres

  2. Henley Business School, University of Reading, Henley-on-Thames, Oxfordshire, RG9 3AU, UK

    Alan M. Rugman

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  1. Javier Aguilera-Caracuel
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Aguilera-Caracuel, J., Aragón-Correa, J.A., Hurtado-Torres, N.E. et al. The Effects of Institutional Distance and Headquarters’ Financial Performance on the Generation of Environmental Standards in Multinational Companies. J Bus Ethics 105, 461–474 (2012). https://doi.org/10.1007/s10551-011-0978-7

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