The effects of institutional distance and headquarters’ financial performance on the generation of environmental standards in multinational companies

Aguilera-Caracuel, J., Aragon-Correa, J. A., Hurtado-Torres, N. E. and Rugman, A. (2012) The effects of institutional distance and headquarters’ financial performance on the generation of environmental standards in multinational companies. Journal of Business Ethics, 105 (4). pp. 461-474. ISSN 1573-0697 doi: 10.1007/s10551-011-0978-7

Abstract/Summary

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.