Firm Internationalization and Emissions Reduction: International Evidence

Abstract

Since climate change and environmental challenges are global in nature, one would expect MNCs to exhibit greater alignment with global environmental sustainability than domestic firms, given their exposure to international norms and stakeholder concerns. A counterargument is that MNCs might instead behave opportunistically, engaging in regulatory arbitrage related to emissions reduction by leveraging their global networks. Using a sample of 11,477 unique firms from 63 countries over the period of 2002–2022, we find that both the magnitude of carbon emissions and the quality of emissions disclosure are positively associated with firm internationalization. Additionally, U.S.-based MNCs that generate sales in civil law countries and regions tend to disclose more emissions information. Furthermore, the relationship between firm internationalization and emissions reduction is moderated by international environmental institutions, such as the Kyoto Protocol. Finally, we find that MNCs are rewarded by a broader stakeholder community for their efforts in reducing emissions. Overall, the results support the new institutionalism theory, suggesting that MNCs’ emissions reduction is perceived as alignment with global environmental norms.