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Master Thesis
The Effects of the National Context on
Corporate Environmental Performance.
An Analysis on Environmental Regulation and
Governmental Incentives for Innovation with the
Moderating Role of Degree of Internationalization.
Author:
Stefano Rapino S3810216
s.rapino@student.rug.nl
Supervisor:
Dr. O. Lindahl
Co-assessor:
Dr. C. Schlägel
MSc International Business & Management
University of Groningen, Faculty of Economics and Business
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ABSTRACT
The increasing awareness of the dramatic impact of firms on the environment has to lead to growing production of research on the environmental management literature during the last years. Nonetheless, the urgency for seriously tackle this issue and the necessity for more specific knowledge on this topic allow to further investigate the dynamics behind the environmental management. On this purpose, this thesis aims to link two different levels of analysis and, in particular, to explain how certain forces at the country-level can promote greater environmental practices at the firm-level. Institutional theory is applied to show the restraining effects of Environmental Regulation on the Corporate Environmental Performance (CEP); while the evolutionary approach is used to analyze the enabling power that Governmental (Direct and Indirect) Incentives for Innovation may have on CEP. Moreover, this thesis makes a step further investigating how an MNE can react to these forces issued at home-country since it operates in many different contexts and, thus, it is likely to be influenced by various pressures and stimuli. In order to conduct the study, this thesis analyses 100 firms headquartered in 20 different countries worldwide and with different degree of internationalization. The empirical analysis based on three independent variables, one moderator – the Degree of Internationalization – and one dependent variable – CEP – is carried out through OLS regression. The study finds support for the positive impact of the Environmental Regulation and the Direct Governmental Incentives for Innovation on Corporate Environmental Performance. Mixed results are observed on the efficiency of Indirect Incentives for Innovation. In addition, contrary to expectations, the hypothesized moderating effects given by the Degree of Internationalization are not statistically significant. These findings allow for academic and practical implications in the field of Environmental Management.
Keywords: Corporate Environmental Performance (CEP), Environmental Regulation, Governmental
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To Mother Earth,
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TABLE OF CONTENTS
ABSTRACT ii LIST OF FIGURES vi LIST OF TABLES vi LIST OF ABBREVIATIONS vi 1.INTRODUCTION 1 2. LITERATURE REVIEW 4 2.1 Institutional Theory 4 2.2 Institutional Pressures for Environmental Sustainability 6 2.3 Governmental Incentives for Technology Innovation 7 2.4 MNEs and Degree of Internationalization 8 2.5 Corporate Environmental Performance 10 2.6 Hypotheses Development 112.6.1 Regulatory Pressures and Corporate Environmental
Performance 11
2.6.2 Governmental Incentives for Innovation and Corporate
Environmental Performance 13
2.6.3 Moderating Effect of the Degree of Internationalization 15 3. RESEARCH METHODOLOGY 18 3.1 Data Collection 18 3.2 Sample 20 3.3 Measures 20 3.3.1 Dependent Variable 20 3.3.2 Independent Variables 22 3.3.3 Moderating Variable 24 3.3.4 Control Variables 24
3.4 Empirical Data Analysis 25
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6.1 Theoretical Implications 34 6.2 Practical Implications 35 6.3 Limitations and Future Research 36
LIST OF REFERENCES 39
APPENDICES I
APPENDIX A
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Table 1: Thomson Reuters ESG pillars I
Table 2: Environmental Category Definitions in Thomson Reuters
ESG database I
APPENDIX B
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Table 1: Shapiro-Wilk Test for normal distribution of variables
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Table 2: Skewness and Kurtosis Test for normal distribution of
variables II
Table 3: Test checking normal distribution of residuals II
Table 4: Cook’s distance testing for possible outliers III
Table 5: White test testing for Heteroskedasticity III
Table 6: VIF test checking for multicollinearity III
Table 7: Durbin-Watson test for independence of errors IV
Graph 1: Kernel density estimates and histogram checking for
normal distribution of residuals IV
APPENDIX C
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Table 1: Durbin-Watson Statistic (1 percent significance points of
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List of Figures
Figure 1: Conceptual Model 18
List of Tables
Table 1: Descriptive Statistics 27 Table 2: Correlation Matrix 28 Table 3: Regression Results 30 Table 4: Variations in R2 and Adjusted R2 31
List of Abbreviations
CEO Chief Executive Officer
CEP Corporate Environmental Performance CSR Corporate Social Responsibility DirIncInv Direct Incentives for Innovation DOI Degree of Internationalization e.g. Exempli Gratia
EnvReg Environmental Regulation
ESG Environmental Social Governance GDP Gross Domestic Product
i.e. Id Est
IndIncInn Indirect Incentives for Innovation LOF Liability of Foreignness
MNE Multinational Enterprise
OECD Office of Economic Cooperation and Development OLS Ordinary Least Square
TRBC Thomson Reuters Business Classifications R&D Research & Development
ROE Return on Equity
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1. INTRODUCTION
Respecting the environment, both in terms of conservation and restoration, has received increasing interest throughout the last decades and years (Guerci et al., 2015). However, the efforts to meet the targets of a sustainable economy are still not enough, and the necessity to find a solution to the environmental issues is even more urgent (UNFCCC, 2018a). Not by chance, the G20 define climate change as one of the greatest challenges of our time (Gauri, 2015). Governments worldwide are taking actions on this matter to promote sustainable environmental performance and to discourage polluting activities at a firm level (Cambell, 2007; Wang et al., 2018). As consequence, managers seem to be more aware of the necessity and the related challenges to be more environmentally sustainable as compensating the negative impact of the firms they manage (Costello et al., 2009; de Lange et al., 2012). The rising awareness around the Corporate Environmental Responsibility leads managers themselves to adopt and develop environmental management practices (McKinsey, 2014) that will result in greater Corporate Environmental Performance. Nevertheless, being aware of the urgency to encounter higher levels of environmental sustainability is not enough to overcome the associated challenges. Indeed, achieving higher standards in terms of Environmental CSR requires, among the other things, technological skills and resources that stimulate innovation (Dornfeld, 2014; Linke et al., 2012). Due to the complexity of challenges, therefore, it is interesting to analyze how the external context through pressures and incentives can stimulate firms in their journey to become more environmentally sustainable.
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et al., 2018). As constrainers, the institutional pressures determine the range of actions that are not accepted to be undertaken by firms; as enablers, the governmental incentives allow organizations to have the resources to execute those actions that are permitted and not prohibited by pressures.
In addition, considering the relevance of the external context, it is worth to highlight that firms are likely to interact with and be influenced by many and various institutions. Particularly MNEs are subjected to multiple external contexts since they are transnational organizations. Indeed, apart from the home-country, MNEs need to consider also the institutions of the host-countries wherein their subsidiaries are located (Surroca et al., 2013; Marano & Kostova 2016). Variety of institutional pressures belonging to diverse contexts are extremely relevant in the environmental management field (Aguilera-Caracuel et al., 2012) since the environmental regulation and environmental priorities remain significantly different across the globe despite globalization (Bansal, 2005; Christmann, 2004).In addition, also the evolutionary approach may highlight implications for operating different countries. In general, host-countries provide different stimuli for the development and diffusion of technological innovations. Not only because innovation incentives are country specific (Patanakul & Pinto, 2014), but also because environment-specific knowledge resides within local clusters (Foss & Pedersen, 2002). Such knowledge is fundamental for developing environmental innovation strategies and technologies (Pinkse et al., 2010) and lie outside the subsidiaries boundaries (Hart, 1995; Sharma, 2005).
All this been said recalls the need to further research around MNEs’ practices in the sphere of environmental management. Although a lot is known on the companies’ tendency to achieve higher CEP under an institutional theory perspective (Berrone et al., 2013; Cambell, 2007; Oliver, 1991; Babiak et al., 2010), the debate about the implications of multiple and diverse external enablers and constrainers is still manner of debate (Christmann, 2004).Also, the effects of policies stimulating technological innovation are worth further investigation. Therefore, this thesis aims to draw a comprehensive view of the external forces such as Environmental Regulation and Governmental Incentives for Innovation belonging to different contexts and that are likely to influence Corporate Environmental Performance.
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pressures would rely on the enforcement of regulations and standards rather than the regulations and standards themselves. Then, as a second issue, it is still unclear whether Governments, around the globe, can actively foster CEP through incentives for innovation. This is still an open question that claims to be answered since it has been discussed that regulation alone is inefficient (Gutowski et al., 2005). Rather, well-designed governmental incentives and society can conjunctly work to promote enhanced environmental management (Aguilera-Caracuel et al. 2012). As a third issue, while most of the previous research has analyzed only the effects of direct incentives (Ashford, 2000; Bossink, 2002; Patanakul & Pinto, 2014), this thesis will assess the impact of both governmental direct and indirect stimulus for businesses’ R&D. Lastly, the study will be further developed by analyzing the implications of operating in multiple foreign countries. Specifically, it will be assessed whether MNEs’ international exposure is likely to decrease the effects of the stimulus and constraints for CEP belonging to the home-country; or whether MNEs tend to engage in certain environmental practices exclusively as a reaction to the home-country framework and thus regardless their Degree of Internationalization (DOI).
In sum, the research aims to answer the following questions concerning environmental management approaches: How does the Home-Country affect Corporate Environmental
Performance? And specifically: How do the Country Institutional Pressures and the Home-Country Governmental Incentives for Innovation affect Corporate Environmental Performance? And are these Relationships Moderated by The Degree of Internationalization of an MNE?
In order to deal with the aforementioned inquiries, a study based on secondary data will be conducted. Data provided by different agencies and published on different databases will be analyzed by using the software STATA (Version 15). A multiple linear regression analysis based on the ordinary least square (OLS) method will be applied to assess the relationships between the three independent variables, the moderator and the dependent variable.
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The below sections of this thesis will be divided as following: the first part will review and present the current literature on institutional pressures, governmental incentives for innovations, and environmental management; then, the hypothesis development will follow; the third section will be dedicated to presenting the collected data and the methodology approach will be explained; following, the results will be presented and then discussed; the last section revealing the conclusions, the implications for managers and policy makers, the limitations and the suggestions for future research, will finalize the thesis.
2. LITERATURE REVIEW
2.1 Institutional Theory
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Some aspects that characterize the external context are institutional pressures. These pressures can be in the form of regulatory, normative or cognitive pressures (Scott, 2005; Ortiz-De-Mandojana et al., 2014). Regulatory pressures are specified in laws and rules (Kostova & Zaheer, 1999) and address firms' behaviors by the deterrent role of legal sanctions (Ortiz-De-Mandojana et al., 2014). Organizations usually conform to regulations because of opportunism. They prefer to avoid suffering the punishment of non-compliance (Di Maggio & Powell, 1983). On the other hand, normative pressures can also play a fundamental role in organizational decisions. These pressures consist of values, beliefs, social norms and assumptions regarding the nature of human beings and their behavior which are socially accepted and shared by individuals within a certain country (Kostova, 1999; Kostova & Roth, 2002). They are norms that suggest what is expected by firms in a given society. These norms can be rephrased as the tacit and deeply values held by society (Kostova & Zaheer, 1999). In addition, cognitive pressures consist of symbols (i.e. words, gestures, and signs) and cultural norms that influence how society understands the reality and gives meaning to it (Zucker, 1983). Generally, cognitive pressures express prevailing cultural attitudes (Scott, 1995). This been said implies that cultural-cognitive pressures, resting on more deeply set of beliefs and assumptions, promote strategic responses which can be defined as “unthinkable” (Scott, 2005, p. 476) in the sense that, although they are not understood by outsiders, they have to be followed and adopted. Therefore, these pressures can turn into imitating those practices which are common despite not being understood by some. Di Maggio & Powell (1983) refer to the imitation of practices as mimetic pressures. These pressures are the response to uncertainty and thus, they result in managerial behaviors motivated by taken-for-granted assumptions rather than conscious strategic choices (Di Maggio & Powell, 1983). Although it has been argued that all three forms of pressures – regulative, normative and cultural-cognitive – work simultaneously, their relative importance is context-specific (Brammer et al., 2012). Scott (2005) provides a theoretical framework which points out that the three pillars of pressures may not be aligned, and thus one may weaken the effects of the other.
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partners to implement environmental management practices (Wang et al., 2018). Therefore, mimetic pressures have limited effects and can be omitted.
In addition, Scott (2005) suggests that regulatory pressures, depending more on external controls such as surveillance and sanctions, are more likely to stimulate strategic responses than other pressures. The rationale is that regulation is codified and hence it is easier to be understood and respected. This last argumentation emphasizes, even more, the importance of regulatory system compared to both cultural-cognitive elements and normative pressures. In addition, the rationale to consider solely the regulative side of institutional pressures in this research relies on their enforcing role. Specifically, this study, aiming to evaluate the role of the national context, senses that the institutional forces most relevant to this matter are the ones enforced by the public agencies. This fits better with the innovation incentives since are issued by the governments. In other words, this research restrains the analysis of the external context to the extent that it is shaped by the State (public agent) through both pressures and innovation incentives.
2.2 Institutional Pressures for Environmental Sustainability
Environmental sustainability has gained great importance and relevance for public opinion, policy-makers, and managers (Costello et al., 2009; de Lange et al., 2012). Increasing environmental awareness has promoted regulatory bodies and public actors to improve and expand the body of environmental law. This has led companies to devote more financial resources and efforts to upgrade their environmental management systems (Kassinis & Vafeas, 2006). Unsurprisingly, environmental management is currently a major topic of management research and the available corpus of knowledge about external pressures and environmental practices is now wider (Garriga & Melé, 2004). As for the regulation, the belonging pressures are carried out by powerful institutions such as governments, legislators and intergovernmental organizations who have the strength and the capacity to enforce laws and standards about environment sustainability (Roxas & Coetzer, 2012).
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correct climate change and improve the quality of the environment (Zhu & Sarkis, 2007) prompt firms to implement environmental management practices through imposing and inducing mechanisms (Di Maggio & Powell, 1983). The inducement mechanism suggests that, by complying with norms and standards, firms can gain several incentives such as tax deductions, incentives and access to certain desired resources (Di Maggio & Powell, 1983). While imposition mechanism indicates that the regulatory agencies can fine not-complying firms and even deny their existence in the jurisdiction (Deephouse, 1996; Berrone et al., 2013).
In sum, growing governmental pressures and public concern regarding environmental protection is, in fact, the key to the increasing importance that environmental management has gained (Brammer et al., 2012; Lee & Klassen, 2016; Zhu et al., 2017). Indeed, always more CEOs have set environmental sustainability as a permanent theme and a key priority among their goals (McKinsey, 2014).
2.3 Governmental Incentives for Technology Innovation
If on one hand, the external context acts as constrainer, on the other hand, institutions have also an enabling role. This is in line with the idea that firms tend to conform to institutional pressures both to be seen as desirable organizations and to access external resources (Oliver, 1997). In this regard, this paper will analyze such resources that are provided by governments and that could explain the reasons for firms’ environmental practices.
Broadly speaking, governments are defined as the aggregation of public-sector agents (Link & Scott, 2010) which are fundamental to promote and sustain innovation (Patanakul & Pinto, 2014). Before explaining the mechanisms that constitute the diffusion of technological innovation, it is appropriate to define what this concept refers to. Generally, innovation is a new idea which can result from recombination of past ideas (Rogers, 1983; Patanakul & Pinto, 2014); a design that challenges present schemes. A new and unique formula or approach. Innovations consist of both new administrative and technical ideas (Van de Ven, 1986). Specifically, while new technical innovations refer to new technologies, services, and products, administrative innovations indicate new policies, procedure and organizational forms (Patanakul & Pinto, 2014).
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technical and administrative elements (Van de Ven, 1986). The emphasis on innovation is due to its crucial role as a driver to the economic wealth of domestic economies, particularly when innovation is actively and effectively promoted by governmental agencies (Patanakul & Pinto, 2014). Therefore, governments should stimulate technological transformation and sustainable development not only by establishing policy goals and standards but also by providing resources that allow firms to achieve those goals (Ashford, 2000; Bossink, 2002). However, such policies and regulations can, among other results, lead to undesirable outcomes such as unfair competition (Grossman & Helpman, 1992) or excessive state control and bureaucracy (Goh, 2003). They, in turn, can have negative effects on the competitiveness and efficiency of firms because of increased operating costs (Patanakul & Pinto, 2014).
Supported by previous research (Nelson & Rosenberg, 1993; Porter, 1998), this thesis considers governmental incentives as promoting technological innovation and industrial development. This is argumentation is central on the evolutionary approach as theorized by Freeman (1994) and Nelson (1995). According to this perspective, technology is not spread by internal mechanisms and logic. Rather, technological development is endogenous to economic incentives and to the institutional structure (Freeman, 1994; Nelson, 1995). Simultaneously, governments should perceive that also businesses are instrumental to innovation and therefore they should design a favorable business environment to allow private industry to be innovative (Goh, 2005; Nelson & Rosenberg, 1993). To reach this goal, States should help reducing and minimizing relevant obstacles, barriers, and restrictions that organizations encounter (Porter, 1998). These policies can take form in both direct support, such as funding and grants, and indirect incentives, such as tax incentives on R&D (Patanakul & Pinto, 2014). However, the governmental incentives can produce different effects since the firms’ competencies on acquiring knowledge and develop technologies, obviously, are still relevant (González, 2005). Moreover, developing new technologies also depends on the specific knowledge that is available in the external context (Pinkse et al., 2010) as well as to diverse context-specific issues that claim to be solved (Bansal, 2005).
2.4 MNEs and Degree of Internationalization
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simultaneously consider each expectation of all relevant national institutional environments wherein their foreign subsidiaries operate (Marano & Kostova, 2016). Indeed, it has been discussed that conforming to the host-country expectations is extremely helpful to overcome the liability of foreignness (LOF) suffered by MNEs when they locate abroad (Zaheer, 1995). In other words, there is a positive relationship between the challenges an MNE face and its international exposure, or also called Degree of Internationalization (DOI) (Sullivan, 1994).
Initially, DOI has been defined by Ansoff (1957) simply as "the performance of a company in foreign markets" (p. 116). Subsequently, many other definitions have been given to this concept. This thesis refers to DOI as the MNE’s expansion towards different geographical locations (Hitt et al.,1997); or simply to the degree to which the operations of such MNE are undertaken outside the home-country (Elango & Prakash-Sethi, 2007).
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Around the idea of institutional arbitrage, another debate about MNEs and CSR-related strategies has received lots of attention. This is the Global versus Local strategy debate. The focal question is whether foreign subsidiaries are more likely to follow CSR strategies – centralized – based on home-country directives (i.e. Global); or tailored – decentralized – on the host-countries context (i.e. Local) (Muller, 2006). Although centralization can be more efficient because MNEs can standardize, and more easily transmit, their best practices across all the countries, a global strategy can lead to a lack of ownership and reduced legitimacy at the local level (Muller, 2006). Whereas, decentralized strategies, being fragmented and developed ad hoc, are locally responsive and can more easily help to gain legitimacy. However, the risk of such local strategies is that MNEs might, in case of multiple local strategies, be subject to internal tensions and be criticized for a lack of consistency. Moreover, local strategies imply more complexity in managing divergent approaches at the subsidiary level. This is an issue that requires a considerable degree of coordination and control also for mainstream business and operations (Muller, 2006).
2.5 Corporate Environmental Performance
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include choices regard disassembly operations to extend the lifecycle of products (Kurk & Eagan, 2008). Environmental practices has received substantial attention in past studies (Tukker et al., 2001; Johansson, 2002; Bok et al., 2008), especially for specific sectors such as the electric and electronic industries (Yung et al., 2012) or the chemical one (Negny et al., 2012). Lastly, the managerial process management practices integrate both process recycling activities and end-of-pipe, prevention-type programs, and procedures and policies such as training of human resources or collecting, monitoring and analyzing data regarding environmental performance (Sarkis et al., 2010). The aim of such monitoring practices is oriented towards controlling pollution, minimizing waste, informing top management and setting of targets and further designing processes (Melnyk et al., 2003).
All these practices end up improving the overall environmental performance of the firm (Brammer et al., 2012). Thus, environmental performance reflects the capacity of a firm to effectively reduce its environmental footprint (Reuters, 2019). Nonetheless, it is important to point out that there are differences between eco-efficiency and eco-effectiveness (Pogutz et al., 2011). For instance, although modern automobiles are much less polluting than earlier cars models (eco-effective), the current automobile industry has an environmental impact much more significant than ever before (not eco-efficient) (Korhonen, 2003). Indeed, diminished driving costs end up increasing the total amount of mileage driven, and so in turn, also emissions and energy use (Korhonen, 2003).
2.6 Hypotheses Development
2.6.1 Regulatory Pressures and Corporate Environmental Performance
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pressures from regulators aim to correct climate change and improve the quality of the environment (Zhu & Sarkis, 2007). Firms are likely to conform to such pressures to avoid that governments will reduce or stop the flow of resources toward them. Lack of conformity will also expose them to public scrutiny, which would compromise their social legitimacy (Kassinis & Vafeas, 2006). If firms do not respect environmental standards and norms and do not implement environmental management practices, they will be subjected to resistance, isolation, social protestation and sanctions (Roxas & Coetzer, 2012). Therefore, compliance with regulations brings a good reputation for firms and enhances their profit and success in the long term (Colwell & Joshi, 2013). Because of such pressures, companies re-evaluate their strategic approaches toward the natural environment to improve their environmental performance (Hart, 1995; Shrivastava, 1995).
Apart from the benefits, firms are prompted to conform to institutional pressures because of perceived threats (Di Maggio & Powell, 1983). For instance, Wang et al. (2018) argue that every firm must, unconditionally, comply with standards and regulations because of the imposition mechanism. Otherwise, the regulatory enforcer can punish and sanction them, and thus further hindering those firms’ survival in its jurisdiction (Deephouse, 1996; Berrone et al., 2013). Even, Berrone et al. (2013) argue that the power of institutional pressures relies on the enforcement of regulations and standards rather than on the regulations and standards themselves. Indeed, it seems that companies have greater incentives to respect regulation when they fear to be subjected to tougher sanctions (Sarkis et al., 2010). Therefore, environmental practices are needed also to avoid penalties and other losses (e.g. lawsuit and suspend business) for lack of obedience (Shu et al., 2016). Not only to obtain social legitimacy and government support. Indeed, firms may have a greater willingness and motivation to reduce their environmental impact when considering the potential costs for not doing so.
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analysis of the net effects – benefits from compliance minus costs to overcome the related challenges – as opposed to the net effects of non-compliance. Therefore, when pressures increase, the net effects of compliance increase and the ones of non-compliance diminish.
In sum, through defining standards, laws, and norms and drawing the means to enforce them, the home-country is expected to play an important role for firms’ behaviors. That is because, a firm needs and relies on the resources belonging to the contexts on which is economic dependent (Marano & Kostova, 2016). Therefore, in order to gain legitimacy, to gather desired resources and to avoid penalties, firms are triggered to respect standards and norms of the relative institutional context (Guerci et al., 2015; Berrone et al., 2013). At this scope, despite the difficulties, firms undertake environmental management practices that improve corporate environmental performance as according to the stringency of environmental regulation and their enforcement (Brammer et al., 2012). Hence, once specified that the term “Environmental Regulation” comprises both its stringency and its enforcement, it can be discussed:
Hypothesis 1: the higher the Environmental Regulation in the home-country, the higher the Corporate Environmental Performance
2.6.2 Governmental Incentives for Innovation and Corporate Environmental Performance
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change (Goh, 2005; Nelson & Rosenberg, 1993). Governments can foster innovation through both government regulations and support measures. The former refers to norms and standards that encourage or impose companies’ behaviors. For instance, they can ban certain products. Whereas, the latter refers to the economic and financial incentives for innovation such as funding, grants, R&D subsidies, tax incentives (Beerepoot & Beerepoot, 2007). Nevertheless, although the introduction of stronger regulations can stimulate a firm’s innovation (Beerepoot & Beerepoot, 2007), the financial requirements for technological change mainly require government’s support measures. Indeed, direct support of R&D, tax incentives on investments for developing technologies, and other technical supporting initiatives can promote a desirable business environment for technological change (Patanakul & Pinto, 2014).
However, governmental incentives can have skewed effects because firms’ specific competencies to develop technologies and acquire knowledge, obviously, are still relevant (González, 2005). Moreover, such specific knowledge also depends on its availability in the external context (Pinkse et al., 2010). The external context can also deviate the R&D activities towards the specific issues of that context itself (Bansal, 2005). In addition, firms can address their technology changes in various ways because of their different willingness to innovate (Ashford, 2000; Patanakul & Pinto, 2014). For these reasons, it is not obvious that firms will efficiently exploit governmental incentives for innovation to reduce their environmental footprint.
In conclusion, being environmentally sustainable involve great investments in tools, raw materials, research, and technology innovation (Cetindamar & Husoy, 2007; Dornefeld, 2014).Since firms may lack the necessary resources to do so (Costantini & Crespi, 2010; González, 2005), governments should support businesses providing incentives (Ashford, 2000; Bossink, 2002). For instance, they can actively promote innovation through start-up money, providing seed grants, offering support for both small and large business and research-driven firms (Patanakul & Pinto, 2014). Hence, despite the aforementioned forces that make unclear if incentives have the desired effect, it can be hypothesized that:
Hypothesis 2a: the higher the Governmental Incentives in the form of Direct Support for R&D to Businesses, the higher the Corporate Environmental Performance
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distortions than the direct R&D subsidies. Tax incentives do not favor particular technologies and do not interfere with market mechanisms. Secondly, they are more accessible to firms and industries regardless of their size, their sectors and the type of R&D activity. Thirdly, they can be more easily predicted, and thus inserted in the enterprises’ financial planning. (Köhler et al., 2012).
However, on the other hand, indirect incentives make the tax system more complicate (Köhler et al., 2012. Therefore, it may be considerably difficult to intercept them. Moreover, indirect incentives allow firms to deduct tax expenses also for R&D activities that would have been undertaken anyways (Köhler et al., 2012). As a consequence, such incentives may not further stimulate the firms’ willingness, capacity and opportunity to innovate.
While the afore-stated hypothesis refers to the Direct Support for R&D to Businesses (as financed by the government), the following hypothesis will argue upon the Indirect Government Support through R&D Tax Incentives. Despite it is unclear if tax incentives may have the desired effect, but considering their advantages and considering that fiscal stimuli can promote a firm’s willingness to innovate, it is proposed that:
Hypothesis 2b: the higher the Governmental Incentives in the form of Indirect Government Support through R&D Tax Incentives, the higher the Corporate Environmental Performance
2.6.3 Moderating Effect of the Degree of Internationalization
As already widely discussed, the institutional theory suggests that firms need to comply to the pressures belonging to the external context. Although this is a challenge for every firm, conforming to external pressures is even more difficult for Multinational Enterprises. The reason is that MNEs, operating in complex and heterogeneous transnational organizational fields, are subjected to various and even conflicting institutional forces (Marano & Kostova, 2016). Zaheer (1995) points out that MNEs should conform to the various host-countries expectations in order to overcome the LOF and gain legitimacy. However, although this idea is widely accepted, Wry et al. (2013) argue that “legitimacy is only important to the extent that the assessing party has influence over the organization being assessed” (p. 472).According to this vision, MNEs must conform only to the relevant national institutional environments. Such relevancy depends on the degree of economic dependency between the MNE and the source of institutional pressures (Marano & Kostova, 2016).
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discuss the effects of conflicting acceptance of the same practices in an international scenario. They present that MNEs’ subsidiaries risk adopting behaviors less common in the foreign local context but expected in the home-country, or conversely, behaviors that are required in the host countries but not institutionalized in the headquarter country.
In general, CSR and environmental strategies are often seen as helpful avenues to overcome LOF abroad (Cardberg & Fombrun, 2006; Matten & Moon, 2008). Therefore, it is often preferred as a global strategy because centralization is more easily to be undertaken (Muller, 2006). However, the institutional theory might suggest a decentralized strategy since firms must tailor their behaviors on the peculiarities of the external context Indeed, an MNEs that deploy a local strategy (e.g. responsive to the local environment), despite the greater difficulties, have higher chances to gain legitimacy.
Both views are reasonable but, here it is supported the latter because environmental regulations and environmental priorities remain significantly different across the globe (Bansal, 2005; Christmann, 2004). Home-country institutional pressures may lose their influences overseas because foreign subsidiaries face environmental issues and regulations different from the domestic ones. Hence, it can be hypothesized that:
Hypothesis 3: the higher the Degree of Internationalization of an MNE, the lower the impact of the Home-Country Environmental Regulation on the Corporate Environmental Performance
Legitimate organizations can also gather country-specific resources and can count on a larger and more collaborative network (Di Maggio & Powell, 1983; Scott, 2005). External resources such as network, available knowledge, and incentives are also focal in the evolutionary theory applied to explain technological development (González, 2005). Freeman (1994) and Nelson (1995) argued that technology is triggered not only by internal logic and mechanisms, but also by institutional structures, networks, and external incentives. Therefore, it is expected that also host-countries may influence the development and diffusion of technologies.
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In sum, despite R&D activities are expected to be mostly domestic and to be predominantly dependent on the home-country governmental incentives for innovation, foreign subsidiaries may ensure considerable benefits for innovation. Foreign subsidiaries and foreign networks allow MNEs to access a great variety of knowledge that can be transferred to the headquarter. Such knowledge is often crucial for developing new technologies. Thus, although an MNE should not have any direct advantages from foreign governmental incentives, its overseas subsidiaries can provide knowledge useful for domestic R&D departments. Thus, it is hypothesized that
Hypothesis 4a: The higher the Degree of Internationalization of an MNE, the stronger the relationship between the Governmental Incentives in the form of Direct Support for R&D to Businesses provided by the Home-Country and the Corporate Environmental Performance
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Figure 1: Conceptual Model
3. RESEARCH METHODOLOGY
This section introduces the research methodology to test the hypotheses. First, the information about the data collection is provided. Subsequently, the sample is described and the measures used for this study are explained. Lastly, data analysis is outlined.
3.1 Data Collection
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secondary data. The data for the dependent variable Corporate Environmental Performance is obtained via the Thomson Reuters ESG database. The data for the independent variable
Environmental Regulation, Direct Support for R&D to Businesses, and Indirect Government Support through R&D Tax Incentives have been collected via the database of OECD (OECD.stat). While the
moderating variable – Degree of Internationalization – stands for a continuous variable in the range of percentage. Such a percentage has been attributed to every firm in the sample size. It has been autonomously calculated based on data retrieved via the Orbis database. Data for the control variables
Firm Size and Financial Performance are retrieved via Orbis database, Financial Times database and
Company websites.
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The data for the independent variables refer to years prior to 2018. This is due for several reasons that worth to be specifically presented further on. Mostly it is because the effects of institutional pressures and governmental incentives are not immediate rather are distributed over-time (Costantini & Crespi, 2010; Zúñiga-Vicente et al, 2012).
3.2 Sample
The sample for this study includes 100 companies headquartered in 20 countries worldwide. The countries have been selected to guarantee a high level of heterogeneity in the sample. The rationale is to gather the best image of the correlation between predictors and outcomes. Countries from all of the five continents have been included. Specifically: three from South America (i.e. Argentina, Brazil, and Chile); two countries from Oceania (i.e. Australia and New Zealand); South Africa is the only African country; China, Korea, Japan and Turkey for Asia; eight countries from Europe – the biggest economies (i.e. France, Germany, Italy, Spain and UK), the best performing Nordic Countries as for Environmental Regulation (i.e. Finland and Netherlands), one from Eastern Europe (i.e. Poland); two countries for the North America (i.e. Canada and Mexico). Then, not all the companies belonging to these countries and rated on Thomson Reuters ESG database could have been included in the sample for practical reasons. Therefore, the sample size has been restricted from 2904 to 100 companies, but the minimum number of observations is still met. The threshold for an acceptable sample size has been defined by following the formula theorized by Tabachnick & Fidell (2007). Such a formula that accounts for the number of independent variables is: N > 50 + 8m (where
m is the number of independent variables) (Tabachnick & Fidell, 2007, p. 123). Given the presence
of three predictors and one moderator (dealt as independent) in this thesis, the minimum sample size is 82. Even including the two control variables, the result (98) would guarantee reliability on 100-observations sample size. This three-digit figure (100) stands for the number of countries (20) multiplied by a fixed number of companies observed (5). To properly select the companies (proxy) for each country, a random selection has been performed by using the specific Excel formula (i.e. “=Random()”). Nonetheless, those companies should match a specific criterion: the average of CEP for the proxy companies should be in the range of the ± 5% of the average of CEP of all the companies assessed for each country. The random selection has been replicated until matching such criterion.
3.3 Measures
21 Corporate Environmental Performance
Several methods have been applied to measure CSR (Margolis et al., 2007). In the field of environmental management, ecology and sustainability studies, researchers have widely debated and wondered how exactly to measure CEP (Dragomir, 2018). Most of the studies relied on qualitative approaches. However, such approaches are based on the researcher's view on firms policies and not so much on actual corporate performance (Chatterji et al., 2009). This also implies the impossibility to verify the accuracy of the valuation and to replicate the study itself (Gonec & Scholtens, 2017). Reasons why this thesis, to assess Corporate Environmental Performance, applies a quantitative approach based on the Thomson Reuters ESG database.
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3.3.2 Independent Variables
Environmental Regulation
To assess the institutional pressures for environmental sustainability, a combination of two indexes provided by the World Economic Forum (WEF, 2017) are used. These two indexes are the “Stringency of Environmental Regulation” and the “Enforcement of Environmental Regulation”. The former that depicts the businesses’ perceptions of environmental regulations is calculated by the WEF asking business leaders the survey question: “How would you assess the stringency of your countries' environmental policy? (scale: 1=very lax; 7=among the world's most stringent)." Such a survey-based indicator depend by construction solely on the perceptions of the survey respondents. They are not based on hard data on environmental policy. However, it is believed to be a reliable index since results suggest that perceived stringency has a significant and positive impact of its own on environmental patent activity (WEF, 2013, p. 384). This indicator is available for more than 100 countries and it has been released for the first time in 2004. In this thesis, the data refers to the weighted average of the scores for the years 2015 and 2016. These scores are the last released and they have been published on The Travel & Tourism Competitiveness Report 2017 (WEF, 2017). This report provides “the set of factors and policies that enable the sustainable development of the Travel & Tourism sector, which in turn, contributes to the development and competitiveness of a country” (WEF, 2017, p. XI). More specifically: “the theme of the Travel & Tourism Competitiveness Report
2017 reflects the increasing focus on ensuring the industry’s sustained growth in an uncertain security
environment while preserving the natural environment and local communities on which it so richly depends” (WEF, 2017, p. XI).The time lag between Environmental Regulation scores and the ones for the dependent variable is in line with prior studies that have instrumented the environmental regulation variables with traditional 2-year lags (Fisher et al. 2003; Harris et al. 2002; Jug & Mirza 2005). For a broader idea of the scores, the worldwide mean among the 136 countries assessed is 4.33, while the maximum and minimum scores are respectively 6,2 (Switzerland) and 1,7 (Yemen) (WEF, 2017).
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For the purpose of this thesis, such indexes will be combined together in order to detect the overall strength and significance of the Environmental Regulation of each country. The new measure (Environmental Regulation) is calculated as the average of the indexes since both report values on a 0-7 scale.
Direct Support for R&D to Businesses and Indirect Government Support through R&D Tax Incentives
Data for the second class of independent variables - Governmental Incentives for Innovation - are retrieved via the OECD database. To assess the Indirect Incentives, this thesis will rely on Indirect
Government Support through R&D Tax Incentives. The score is calculated as the average between
the values of the two last available years, that are 2015 and 2016. Therefore, it can be noticed that there is a 2-3 years’ time lag between this variable and the dependent one. However, this time lag should not imply biases rather it can be argued that it is a reliable solution in this context. Indeed, it has been widely proposed that as R&D investment requires time to be implemented, the full effects of subsidies are likely to be distributed over-time (Levy and Terleckyj, 1983; Lach, 2002; Zúñiga-Vicente et al, 2012). Levy and Terleckyj (1983) find that such effects are postponed on an average of three years, while Mansfield & Switzer (1984) and Lichtenberg (1984) find that the overtime gap can be translated into a two-years’ time lag.
Different considerations need to been done for the data used to assess the governmental Direct
Support for R&D to Businesses. Also these data, displayed under the variable named “Business Enterprise Expenditure on R&D as financed by the government (as a percentage of GDP)”, are
retrieved from the OECD database. Here, the last available year is 2014. This would imply a 4 years’ time lag which might be too large and creates relevant biases. Therefore, to overcome this problem, the data are calculated as the mean of the values from 2006 to 2014. The standard deviation along these data is also assessed. The country that shows the lowest variation across the years is Japan (st.dev=0), while South Africa with a standard deviation equal to 0.039 is the country with the highest variation in the data set. Most importantly, for every country standard deviation is smaller than the mean, and therefore the coefficient of variation is <1. This implies that the mean of the data is an acceptable measure for the analysis (Feinstein, 2002) and that somehow predict the scores for the years post 2014. Through this method, at least, it can be depicted each governments’ tendency to finance and support R&D business activities (OECD, 2019).
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taken into consideration. As of the last remark about these indicators, it worth to be mention that Germany, Finland, and Mexico do not promote R&D activities through tax incentives.
3.3.3 Moderating Variable
Degree of Internationalization
International exposure may have different effects on home-country Environmental Regulation and on Governmental Incentives for Innovation as influencing CEP. Such hypotheses rather uncertain required to be analytically assessed. In order to determine the Degree of Internationalization of a firm, this thesis applies the structural indicator of “proportion of foreign affiliates” (number of
foreign-owned subsidiaries/ total number of subsidiaries) (Dorrenbacher, 2000; Ramaswamy et al.,
1996). DOI for each company is autonomously calculated on the basis of data retrieved from the Orbis database.
3.3.4 Control Variables
Firm Size: Employee Number
It has been suggested that resources increase concomitantly with firm size. Greater financial resources have been found to promote higher environmental performance (Gonenc & Scholtens, 2017). In addition, Vogel (2005) argues that the larger a firm, the greater its social and environmental responsibility. Therefore, social performance may be influenced by the MNE size which can be measured by the total Employee Number (Ali et al., 2014). These data are retrieved from different sources such as the Orbis database, the Financial Times database, and Company websites.
Firm Profitability: Return on Equity (ROE)
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3.4 Empirical Data Analysis
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4. RESULTS
This section describes the results of the correlation tables, descriptive statistics, and regression analysis, along with the validity of the hypotheses.
4.1 Descriptive Statistics
The sample consists of 100 companies randomly selected among the ones rated in the Thomson Reuters ESG database. These companies are headquartered in 20 different countries, already presented. No industry effects need to be considered since Corporate Environmental Performance are already standardized for the peers’ industry values (Refinitiv. 2019). Table 1 presents the Descriptive Statistics. It can be noticed that CEP assume values almost along the whole scale, that is from 0 (low performance) to 100 (high performance). The minimum is 13.19, while the maximum is 93.78. The skew is slightly positive since the mean is 57.19. Looking at the other variables, it can be noticed that the mean for the Environmental Regulation (4.73) is above the “worldwide” (136 countries rated on the relative indicators) average that is 4.25 (i.e. =(4.33+4.17)/2 ). The scores run from a minimum of 3.35 to a maximum of 6.2. Both the Direct and Indirect Incentives for Innovations are small decimal values that range: the former from a minimum of 0.0086 to a maximum of 0.159, with a mean equal to 0.0545; the latter from a minimum of 0 (due to the absence of R&D tax incentives in Germany, Finland and Mexico) to a maximum of 0.284, with a mean equal to 0.0722. The moderator variable – DOI – is in the form of percentage where a value of 0% implies that the firm operates exclusively in the home country. A value close to 100% denotes an MNE mostly oriented towards foreign markets. The Descriptive Statistics table shows the presence of firms completely domestic since the minimum value is 0%. Instead, the maximum international exposure corresponds to 97.59%. The mean of the Degree of Internationalization is 55.89%. Observing the control variables, the effects of the transformations can be noticed. Originally, Firm Size and Financial Performance were quite highly dispersed: standard deviation for Employee Number is 53905 and 12.07 for ROE. While, after being transformed, such values decrease to 1.55 for the logarithmic function of Employee Number –
(log)EmpN – and to 1.36 for the root square function of ROE – (sqrt)ROE. Moreover, in (log)EmpN
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4.2 Correlation
In the Correlation Matrix (Table 2) it can be observed how CEP significantly correlates with all the variables except for (sqrt)ROE. Therefore, while the high correlation with the (log)EmpN (0.342***) seems to confirm the idea that green performance is likely to be carried out by large companies because of more resources and assets available (Gonenc & Scholtens, 2017; Vogel, 2005); the non-significant correlation with the (sqrt)ROE indicator (0.088) contradicts previous findings suggesting that slack of financial resources are needed for firms to be more environmentally sustainable (Berrone et al., 2013; Hart & Ahuja, 1996; Russo & Fouts, 1997). The high correlation with Environmental
Regulation (0.348***), with Direct Incentives for Innovations (0.438***), with Indirect Incentives for Innovation (0.292**) and with Degree of Internationalization (0.385***) is in line with the
discussed theory. Also the significant correlation between Degree of Internationalization and
Environmental Regulation (0.314***), and (slightly less significant) with both Direct Incentives
(0.222*) and Indirect Incentives (0.230*) seems to be in line with the expectations exposed in the literature section. Despite the high correlation (0.448***) between the two indicators that assess the governments’ favor for promoting the R&D activities in private businesses – DirIncInn and IndIncInn – the risk of multicollinearity is excluded as shown by the VIF test. Interestingly it is the result of the correlation (-0.078) between the Firm Size – (log)EmpN – and the firm Financial Performance –
(sqrt)ROE – which is neither significant and positive. This is in line with previous findings that found
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variables (e.g. Hall and Weiss, 1967; Stierwald, 2009), perhaps the significance of such correlation is still an open question (Doğan, 2013).
4.3 Regression Results
Table 3 shows the results of the Regression Analysis. Model 1 aims to test the effects of the
transformed control variables on the dependent variable Corporate Environmental Performance. Firstly, it can be seen that both have positive effects on CEP (sqrtROE: 1.404 and logEmpN: 3.751***). However, only the latter has a significant effect since the p-value is equal to 0.000, while for (sqrt)ROE p=0.228. Once again, these results seem to confirm previous research on the positive effects of firm size on environmental management practices (Gonenc & Scholtens, 2017; Vogel, 2005), but rejecting the theory according to which such practices strongly depend on the financial resources that a firm possesses (Berrone et al., 2013; Hart & Ahuja, 1996; Russo & Fouts, 1997).
Model 2 to Model 4 assess the effects of each independent variables on CEP. Specifically, Model 2 shows a positive (B=7.275***) and high significant (p=0.000) effect of the Environmental
Regulation (EnvReg) on the dependent variable. Such results are confirmed in Model 9 (p=0.008)
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Model 3 explores the effect of governmental Direct Incentives for Innovation (DirIncInn) on the dependent variable which was hypothesized to be positive. In line with the expectations, this positive relation has been found along with a high significance (p=0.000). Although Model 7 shows a non-significance (p=0.217) but still positive relation, Model 9 confirms the positive and significant (p=0.003) effects of Direct Incentives on the dependent variable. Therefore, Hypothesis 2a can be confirmed.
Model 4 aims at measuring the effect of the governmental Indirect Incentives for Innovation
(IndIncInn) on CEP. Also here the results are in line with the expectations since a positive and
significant (p=0.002) relation has been found. Nonetheless, the significant results for the role of
Indirect Incentives are not further confirmed by the other models. Model 8 exploring the effects of
the interaction with the moderator confirms the positive relation (B=37.61), but the significance fails (p=0.482). Same findings are observed in Model 9 (B=15.03; p=0.446). All this been said only partially confirms the positive relation between the Indirect Incentives for Innovations and CEP as expected by the Hypothesis 2b. The lack of significance in Model 8 and Model 9 does not allow to confirm this Hypothesis.
Model 5 reports the direct effects of the moderator variable – Degree of Internationalization – on the dependent variable while controlling for firm size and financial performance. The positive (B=19.21***) and significant (p=0.000) results suggest that DOI would fit also as an independent/control variable. Rather, looking at Model 6 to 8, it should be stated that DOI would fit only as an independent or control variable. Indeed, no significance it has been found for its role as moderator. In Model 6, the interaction with the Environmental Regulation is not only non-significant (p=0.798) but also negative (B= -1.599). While, despite being positive (B=66.55), the interaction with
Direct Incentives, as shown in Model 7, is not significant (p=0.617). The same is for the interaction
with the Indirect Incentives – in Model 8 (B=17.80.; p=0.814). In sum, Hypothesis 3, as well as Hypotheses 4a and 4b, cannot be accepted.
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Table 4 presents the Variations in R2 and Adjusted R2of the models presented in a hierarchical fashion. It can be noticed how both R2and Adjusted R2 improve as the independent variable EnvReg is added in Model 2 and in Model 3 with the addition of DirIncInn. While, there is a decrease in R2 and Adjusted R2, in Model 4, once the IndIncInn is included. Then, R2and Adjusted R2 slightly
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in interaction with DOI) R2and Adjusted R2 decrease again. Instead, Model 9 that considers the variables all together shows the highest values for both R2and Adjusted R2.
5. DISCUSSION
This thesis has been developed on the purpose to analyze whether and how the external context, wherein a firm operates, can force and facilitate firms to reduce their environmental impacts and become more sustainable. Here, the external context has a twofold meaning. Firstly, it is shaped by formal institutions that relying on stringent environmental regulation on its enforcement can limit corporate polluting activities; secondly, external context stands for governments that can enable firms to innovate. Leveraging on governmental R&D incentives firms can develop processes and products that may decrease their environmental footprint. This thesis further investigates whether the international exposure of an MNE might deflect such pressures and instruments provided by the home country. After conducting the methodology and analyzing the results, it can be stated that Corporate
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after reviewing the literature. Nevertheless, mixed findings are observed on the effects of Indirect
Governmental Incentives for Innovation on CEP, thus not allowing confirmation of what
hypothesized. Furthermore, against the expectations, the Degree of Internationalization does not have a significant role as a moderator. Rather it seems to better fit as independent or control variable.
Consistent with previous research (Ortiz-De-Mandojana et al. 2014; Kassinis & Vafeas, 2006; Wang et al., 2018), the regression analysis shows that institutional pressures, in form of
Environmental Regulation, promote environmental management practices and, in turn, improve Corporate Environmental Performance. The motivations can be found in the institutional theory. It
suggests that firms need to conform to such pressures in order to gain legitimacy and to gather country-specific resources (Di Maggio & Powell, 1983; Scott, 2005; Oliver, 1991). In this way, firms can survive and thrive in the market.
Along with setting up stronger environmental policies and enforcement mechanisms, the State should also pursue strategies consistent with its enabling role. The regression models, indeed, highlight that Governmental Incentives for Innovation are positive related to CEP. However, if on one hand, Direct Incentives are significantly influent in every model that assess them; Indirect
Incentives, on the other hand, show mixed results. Perhaps, the incomplete support on the Hypothesis
2b is due to the specific characteristics of tax incentives. As discussed in the second section of this thesis, tax incentives being accessible regardless of the novelty of the R&D activity might not stimulate the firms’ willingness, capacity and opportunity to innovate. Even, if a firm does not aim to reduce its environmental footprint, such incentives that do not favor any particular technologies may rarely be used to develop greener technologies. Differently, Direct Governmental Incentives for
Innovation show the greatest positive coefficients both when assessed as a single variable – in Model
3 (B=173.8) – and when interplayed with the other independent variables – in Model 9 (B=123.3). Also, results in R-squared variations further strengthened the idea that Direct Incentives are the most influential tools for higher CEP. Indeed, among the regressions on the single independent variables, Model 3 shows the highest R2 (=0.283) and the highest Adj R2 (=0.261). Such results indirectly
confirm the idea that being environmentally sustainable requires, necessarily, adequate technologies (e.g. Gonzales, 2005; Cetindamar & Husoy, 2007; Dornefeld, 2014). But above all, they highlight the central role of governments in stimulating innovation, as argued by the evolutionary theory (Nelson & Rosenberg, 1993; Porter, 1998).
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control variable. Specifically, the results indicate that the DOI has a significant and positive direct impact on CEP. Such findings can have multiple explanations and represent many theoretical implications. For instance, under the institutional theory lens, it seems to confirm the idea that environmental management practices, and CSR in general, are effective strategies to overcome LOF in foreign context (Cardberg & Fombrun, 2006; Matten & Moon, 2008). Furthermore, international exposure can also stimulate learning abilities and capabilities needed to better address environmental issues, as argued by Marano & Kostova (2016). While, the debate between Local versus Global CSR strategy (see Muller, 2006) can help to explain the not-significant effects of Degree of
Internationalization as moderator. Environmental practices, and generally CSR, are still deployed as
global strategies, and thus mainly influenced by the home-country (Levy & Kolk, 2002). In addition, a parallel explanation can be due to a limitation of the thesis itself (presented below). Broadly, the thesis does not deeply analyze each country where the MNEs move into. Following, the interaction between the Degree of Internationalization and the Environmental Regulation has a negative (despite not-significant) impact on CEP. This may partially confirm what expected and hypothesized: international exposure is likely to decrease the strength of the home-country institutional pressures. Thus, trying to summarize, it can be said that the MNEs’ environmental strategies are still mainly determined by the headquarter. Nonetheless, as argued by Surroca et al. (2013), subsidiaries may decentralize their environmental strategies and tailor them on the local context only when preferred. For instance, when the host-country environmental standards and laws, and their enforcement, are weaker than the home-country ones. Moving forward, the results of the interactions between DOI and
Governmental Incentives for Innovations show positive (despite not-significant) effects on CEP.
These findings may suggest, as previously discussed, that going abroad allows MNEs to access to larger and richer pools of specific knowledge which can be exploited to develop technological innovations. Nevertheless, knowledge and experience belonging to international exposure still have a marginal role in the MNEs’ willingness, ability and opportunity to innovate. Indeed, the not-significance of these findings might confirm that that MNEs and their R&D departments mostly rely on the incentives belonging to the home country.
Lastly, it is important to underlie the effects of the control variables on the model. Only the
Firm Size (expressed by the logarithmic function of the employee number) affects the model in a
positive and significant way. This result supports previous research which argues that environmental management practices require a lot of resources and therefore large companies are more likely to undertake them (Gonenc & Scholtens, 2017; Vogel, 2005). However, it was not expected that a firm’s
Financial Performance would not have belonged to such resources. Indeed, it is not significantly
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6. CONCLUSION
The following and final paragraphs aim at presenting the contributions to the current literature given by this thesis. Along with the practical and theoretical implications, these final paragraphs will also define the limitations and will suggest avenues for future research.
6.1 Theoretical Implications
This thesis contributes to expanding the current environmental management literature by providing several implications. Such implications regard the relationship between some national characteristics and the environmental performance achieved by firms there established. The analysis, therefore, it is developed at two different levels. At the country level, it refers to both the constraining and enabling forces belonging to the home-country; whereas, at the firm-level, it is assessed the quality of environmental practices – processes and products – undertaken by the firms. As the first contribution, the thesis confirms the current literature that highlights the importance of the country forces as drivers for firms’ environmental strategies. On this matter, it has been found that Environmental Regulation (regulative pressures) acting as constrainer for acceptable behaviors contribute to promoting greater
Corporate Environmental Performance. This result highlights, once again, the relevance of
legitimacy. Therefore, if not strictly on the institutional theory, the environmental management literature should continue to evolve, at least, on the notion that stakeholders (e.g. States) influence firms’ behaviors. Indeed, it is wide-acknowledged that firms need legitimation by stakeholders. This is essential to be successful both in domestic as well as in foreign markets. Legitimacy enables firms to cooperate with the other players in the market and to gather specific resources.
For instance, Governmental Incentives for Innovation might stand for specific resources that influence firms’ actions. Indeed, it has been found that such incentives, stimulating R&D activities, can promote the development of greener technologies that will result in higher CEP. Nevertheless, this is valid only for the Direct form of these incentives. Therefore, a subsequent implication of this thesis is that the State has the burden and the honor to boost technological innovation. This is its enabling role. Furthermore, it has been found that Direct Incentives for Innovation have a stronger influence in promoting CEP than the Environmental Regulation (see the coefficients in the regression model). This indirectly confirms previous research (Gonzales, 2005; Cetindamar & Husoy, 2007; Dornefeld, 2014) highlighting that the transition towards a more environmentally sustainable world cannot prescind from the technological development (as long as the technological innovations have
a positive impact on the environment. Not all of them has it). Therefore, environmental management
