Do stringent environmental policies deter FDI? M&A versus Greenfield

  • Strict environmental regulation may deter foreign direct investment (FDI). The paper develops the hypothesis that regulation predominantly discourages FDI that is conducted as Greenfield investment rather than mergers and acquisitions (M&A). The hypothesis is tested with German firm-level FDI data. Empirically, stricter regulation reduces new Greenfield projects in polluting industries, but indeed has a much smaller impact on the number of M&As. This significant difference is compatible with the fact that existing operations often benefit from grandfathering rules, which provide softer regulation for pre-exisiting plants, and with the expectation that for M&As part of the regulation is capitalized in the purchase price. The heterogeneous effects help explaining mixed results in previous studies that have neglected the mode of entry.
Author:Sylwia BialekORCiDGND, Alfons J. WeichenriederORCiDGND
Parent Title (English):Environmental and resource economics
Publisher:Springer Science + Business Media B.V.
Place of publication:Dordrecht [u.a.]
Document Type:Article
Date of Publication (online):2021/09/08
Date of first Publication:2021/09/08
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2022/02/14
Tag:Entry mode; Environmental stringency; Foreign direct investment; Pollution haven hypothesis
Page Number:34
First Page:603
Last Page:636
Open Access funding enabled and organized by Projekt DEAL.
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoCreative Commons - Namensnennung 4.0