Firm Exposure to Environmental Regulations: Multinational Mobility and Non-Market Capabilities

What types of firms are attracted or deterred by strict environmental regulations? In this paper, we contribute to answering that question by identifying configurations of firm capabilities that favor their exposure to relatively stricter or laxer regulations in their global operations. We propose that firms’ bundles of technical capabilities- in the form of technological and environmental capabilities-, multinational mobility capabilities, and non-market capabilities -in the form of political and social capabilities-, shape their ability to comply vs. arbitrage. We study the 709 international acquisitions and divestments of polluting activities of 50 French multinationals over 2005-2017. The results of our fuzzy set qualitative comparative analysis suggest that, on the one hand, some firms target countries with strict regulations when investing in polluting industries, primarily because their bundle of capabilities reduce the cost of compliance they face relative to peers, and on the other hand, some firms target countries with lax regulations because their mobility and non-market capabilities reduce the cost of regulatory arbitrage. Thus, our paper contributes to research on firms’ responses to environmental regulations, speaks to the resource based view of the firm and to non-market strategy research."