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

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.