UNIT 1 ARTICLE REVIEW ( ETHICS )
Bholman22
Environmental Pressure and the Performance of Foreign Firms in an Emerging Economy
Nahyun Kim • Jon J. Moon • Haitao Yin
Received: 23 July 2014 / Accepted: 4 February 2015 / Published online: 14 February 2015
� Springer Science+Business Media Dordrecht 2015
Abstract Does environmental management help foreign
firms outperform local firms in emerging economies? While
existing research suggests that environmental management
may or may not benefit firm performance, the question is
particularly under-investigated in the emerging economy
context. Using the data on foreign investment into China, this
study explores whether foreign firms that are under greater
environmental pressure, at home or at the host, outperform
comparable local firms in an emerging host country. In mak-
ing this comparison, we use propensity-score matching and a
difference-in-differences approach to handle the problem of
endogeneity inherent in comparing the performances of for-
eign versus local firms. We find empirical support that foreign
firms perform better than local firms when they are under high
environmental pressure in the emerging host country, and this
result is driven by the foreign firms originating from countries
with high environmental pressure.
Keywords Environmental pressure � Stakeholder theory � Foreign direct investment � Emerging economy � Firm performance
Introduction
The impact of environmental management on the perfor-
mance of foreign firms is debatable. On the one hand,
studies show that environmental management is beneficial
to foreign firms, helping them become competitive and
gain legitimacy and resulting in a positive firm perfor-
mance (Chang 2011; Hart 1995; King and Lenox 2002;
Porter and van der Linde 1995). On the other hand, it is
argued that environmental management creates additional
costs that might have negative effects on foreign firm
performance (Jaggi and Freedman 1992; Palmer et al.
1995), driving them to seek pollution havens (Cole and
Elliott 2005; Ding et al. 2014; Walter 1982). In this study,
we attempt to examine the effect of environmental man-
agement by foreign firms on their performance in an
emerging economy by comparing the performance of for-
eign-acquired local firms and similar local firms under
different levels of host country environmental pressure and
home country environmental pressure.
Existing studies have shown how the performance of
firms entering a foreign country is determined. On the one
hand, foreign firms receive an advantage from foreign
ownership due to access to proprietary assets such as
technologies, brands, and procedural know-how, which
could enable better performance (Caves 1996; Dunning
1981; Kogut and Zander 1993). On the other hand, foreign
firms have to face liability of foreignness in host countries,
which results in lower performance compared to local firms
(Hymer 1976; Zaheer 1995; Zaheer and Mosakowski
1997). We argue that a capability for environmental man-
agement can be an important component of the foreign-
ownership advantage that has not been highlighted so far.
In addition, environmental management can help foreign
firms reduce the liabilities of foreignness, particularly in
N. Kim
Institute for Business Research & Education, Korea University
Business School, Korea University, 145 Anam-ro, Seongbuk-gu,
Seoul 136-701, Korea
J. J. Moon (&) Korea University Business School, Korea University, 145 Anam-
ro, Seongbuk-gu, Seoul 136-701, Korea
e-mail: [email protected]
H. Yin
Antai College of Economics and Management, Shanghai Jiao
Tong University, 535 Fahua Zhen Road, Shanghai 200052,
China
123
J Bus Ethics (2016) 137:475–490
DOI 10.1007/s10551-015-2568-6
terms of dealing with stakeholder pressures and gaining
legitimacy in the host country.
We use subsidiary-level financial data from China and
compare the performances of foreign-acquired local firms
with those of similar local firms by employing propensity-
score matching and the difference-in-differences (DID)
technique (De Loecker 2007; MacGarvie 2006; Rosenbaum
and Rubin 1983),with subsamples of firms facing different
levels of environmental pressure at the host country, and
among them, with subsamples of foreign firms facing dif-
ferent levels of environmental pressure at the home country.
We argue that China is an ideal place to study the impact of
environmental pressure on foreign firm performance in an
emerging economy for the following reasons: first, China
received the largest amount of foreign direct investment
(FDI) among emerging economies, as of 2009 (UNCTAD
2010). Second, there is substantial heterogeneity in the de-
gree of environmental pressure exerted by the home coun-
tries of foreign investors. The majority of these investments
came from the Greater China regions of Hong Kong, Macau,
and Taiwan, whereas most others came from high-income
countries where environmental standards are much higher
than those in China. Third, environmental pollution is a big
concern in China, and this problem is receiving much at-
tention from other countries as well (Economist 2013; Wong
2013). Finally, there exist substantial variations in the level
of pollution and the degree to which environmental regula-
tions are enforced among different industries in China. These
variations, which lead to varying degrees of environmental
pressure, provide us with a fertile ground to study the
aforementioned impacts.
We use propensity-score matching and the DID method
to address the problem of endogeneity inherent in com-
paring the performance of foreign firms with those of local
firms. When foreign firms consider investing in a local
firm, they are likely to invest in more promising local firms.
Consequently, the performance difference between for-
eign-invested firms and local firms is probably caused ei-
ther by foreign ownership or by the local firm’s
characteristics. We are able to address the effect of ob-
servable firm characteristics on receiving foreign invest-
ment by employing the propensity-score matching in
conjunction with DID approach (Arnold and Javorcik
2009; Chang et al. 2013). We match each foreign-acquired
local firm (treatment group) with a remaining local firm
(control group) that has not been acquired by a foreign
investor, despite having an almost identical ex-ante prob-
ability of being acquired, within the same ownership type,
three-digit SIC industry, province, and year. After ad-
dressing the endogeneity issue with propensity-score
matching, we adopt the DID method to compare the per-
formances of these two groups. Our findings confirm that
the performance of foreign-acquired local firms is better
than that of matched local firms in industries with greater
regulatory scrutiny, while we find no such differences in
industries with less regulatory scrutiny. Moreover, foreign-
acquired local firms, originating from countries with high
environmental pressure, greatly outperform matched local
firms in industries with greater regulatory scrutiny, while
there is no difference between foreign-acquired local firms
originating from countries with low environmental pressure
and matched local firms.
Our study contributes to the literature on environmental
management in business ethics. An increasing number of
multinational firms are finding it challenging to develop
sustainable business strategies to meet the diverse demands
of their stakeholders. Despite the salience of the subject,
researches on environmental management in emerging
economies have been limited to discussions on stakeholder
management or environmental regulations. This is pri-
marily due to the unavailability of disaggregate data. We
are proposing a method that can circumvent this limitation
and highlight the conditions under which foreign investors
can expect to benefit from their superior environmental
management capabilities. We argue that the capabilities of
foreign firms to deal with environmental pressure can add
to the foreign-ownership advantage, augmenting conven-
tional advantages such as technologies, brands, and
reputation. We also argue that the clever handling of en-
vironmental issues can help foreign firms reduce the lia-
bility of foreignness. Our findings suggest that foreign
firms operating in emerging economies can utilize better
environmental management capabilities to address the de-
mands of the host country government, customers, and the
media, which could lead to enhanced competitiveness and
sustainability in the host country.
This paper is organized as follows. In the next section,
we build on the existing literature and develop our hy-
potheses. In the third section, we discuss our data and
methodology. We present our empirical findings in the
fourth section and then conclude the paper with a summary
of findings, and discuss the limitations of the study along
with suggestions for future research.
Theory and Hypotheses
Existing studies in international business propose that
foreign firms have great opportunities to outperform local
firms when they are equipped with valuable firm-specific
assets such as state-of-the-art technologies, advanced
management systems, and a manifold international expe-
rience. Proprietary assets, referred to as the ‘‘ownership’’
advantage, enable foreign firms to expand into new markets
and gain profitability across many different countries
(Caves 1996; Dunning 1981; Kogut and Zander 1993).
476 N. Kim et al.
123
On the other hand, many studies support the opposite
argument that local firms outperform foreign firms. Unlike
local firms, foreign firms lack institutional information on
the economy, law, culture, and language of the host
country, and thereby incur additional costs, known as the
‘‘liability of foreignness’’ (Hennart 1982; Hymer 1976).
Zaheer and Mosakowski (1997) find evidence of liability of
foreignness in global currency trading over two decades
and identify the conditions under which foreignness be-
comes a liability. Mezias (2002) states that British, Ger-
man, and Japanese subsidiaries in the US are not well-
versed in local practices, causing them to face more labor
lawsuit judgments in both federal and state jurisdictions.
One foreign-ownership advantage that has received little
attention is the high standard of environmental management
by foreign firms. Recent literature underscores the importance
of environmental and social legitimacy in every subsidiary
location,andthemanifoldstakeholderpressuresthatinfluence
firms’ environmental management practices (Delmas and
Toffel 2008; Escobar and Vredenburg 2011; Huang and Kung
2010; Walker et al. 2014). Stakeholder theory holds that
corporations should manage the relationship with stakehold-
ers proactively to gain a sustainable competitive advantage
(Bach and Allen 2010; Berrone et al. 2007; Freeman 1992;
Porter and Kramer 2006; Sharma and Vredenburg 1998). As
globalization makes competition more fierce, corporations
find that they cannot maintain their competitive edge by
merely focusing on narrowly defined market strategies (Bach
and Allen 2010). They need to interact with stakeholders, and
even aim at creating shared value between the firm and the
society,toattainandmaintaina competitiveadvantage (Porter
and Kramer 2011). It is also argued that the strengths of for-
eign firms in stakeholder management can be an effective
weapon to overcome the ‘‘liability of foreignness’’ derived
from institutional differences.
Several studies point out that among the various stake-
holders, the natural environment is growing increasingly
pivotal in shaping a firm’s competitiveness. Driscoll and
Starik (2004) describe the natural environment as one of
the important stakeholders based on legitimacy and ur-
gency. Hillman and Keim (2001) argue that the natural
environment is fundamental to several primary stakehold-
ers for environmentally sensitive industries, and managing
environmental concerns proactively can therefore lower the
costs of complying with the existing and future environ-
mental regulations. Firms respond to environmental issues
differently, depending on the level of pressure from
stakeholders (Henriques and Sadorsky 1999; Qi et al. 2013;
Vazquez-Brust et al. 2010) and on how much importance
they attach to environmental concerns in their operations.
Compared to indigenous local firms, foreign firms face
more complicated stakeholder management issues as they
concern themselves with both home country and host country
stakeholders (Buysse and Verbeke 2003; Delmas and Toffel
2008; Rodriguez et al. 2006). It is predicted that stakeholders
in the home country and host country will have different,
sometimes conflicting, interests that require foreign firms to
design sophisticated stakeholder strategies. Further, host
country governments, consumers, and suppliers might dis-
criminate against foreign firms (Hymer 1976), putting foreign
firms under rigorous scrutiny. Additional attention is also
given to foreign firms as host country stakeholders regard
foreign firms differently from local firms and apply different
standardsinevaluatingenvironmental performance (King and
Shaver 2001; Kostova and Zaheer 1999).
Under pressure from various stakeholders, foreign firms
are motivated to develop proactive stakeholder strategies
rather than passively complying with regulations in an at-
tempt to attain competitiveness (Hillman and Keim 2001;
Mitchell et al. 1997). Delmas and Toffel (2008) suggest
that institutional pressures from both market constituents
and nonmarket constituents cause firms to adopt environ-
mental management standards such as International Stan-
dard Organization (ISO) 14001. Reid and Toffel (2009)
argue that firms are more likely to adopt practices consis-
tent with social movements when they are faced with
government regulation on social issues. King and Shaver
(2001) find that additional social demands stimulate for-
eign firms to carry out more waste processing than do-
mestic firms in the US. Firms that draw the attention of
their stakeholders tend to enhance their environmental
practices above home country standard, which helps them
go beyond local standards and obtain social legitimacy.
Foreign firms are also able to establish green firm-specific
advantages in response to heightened pressure for national
responsiveness from stakeholders. These advantages may,
in turn, allow foreign firms to overcome their potentially
weak legitimacy (Rugman and Verbeke 1998).
Pressures from evolving environmental regulations drive
foreign firms to innovate green technologies, allowing them
to accumulate environmental management know-how and
offsetting the costs of compliance with environmental stan-
dards (Berrone et al. 2013; Jaffe et al. 1995; Porter and van
der Linde 1995). This ‘‘innovation offset’’ plays a significant
role in abating pollution and reducing private costs (King and
Lenox 2002; Sánchez-Medina et al. 2015). Benefits from the
innovation offset become greater when foreign firms adopt
advanced environmental practices compared to local firms in
emerging economies, which may adopt underdeveloped
practices or lack them altogether (Rugman and Verbeke
1998). The advanced environmental practices of foreign
firms can help them gain a competitive advantage over local
firms, as foreign firms are able to obtain stronger legitimacy
by applying their environmental management knowledge to
operating practices and making local stakeholders aware of
such practices in the emerging host country.
Environmental Pressure and the Performance of Foreign Firms 477
123
Resources associated with environmental management
capabilities accumulate in firms that have experienced
strict environmental standards in multiple countries
(Dowell et al. 2000), which firms can utilize in adapting to
the demands of stakeholders (Aragon-Correa and Sharma
2003; Russo and Fouts 1997). For instance, firms that have
acquired knowledge of environmental laws and regulations
through exports may have greater abilities to manage their
environmental practices (Darnall et al. 2008; Lin et al.
2014). Luo (2000) shows that the dynamic capabilities of
foreign firms enable them to overcome institutional
uncertainty and to evolve in meeting external and internal
needs. Foreign firms are expected to be able to address the
demands of multiple stakeholders in their environmental
strategy (Sharma and Henriques 2005), and their responses
to environmental pressure across many countries drive the
standardization of their environmental policy on a global
scale (Christmann 2004; Lyon and Maxwell 2004). Envi-
ronmental management capabilities obtained via extensive
international experience may, in turn, reinforce the existing
foreign-ownership advantage and become an integral part
of the foreign-ownership advantage in itself (Eskeland and
Harrison 2003; Zeng and Eastin 2007).
Some authors, however, suggest that proactive envi-
ronmental management requires firms to incur additional
costs, resulting in negative financial consequences (Cor-
deiro and Sarkis 1997; Jaggi and Freedman 1992; Kim and
Statman 2012; Palmer et al. 1995; Walley and Whitehead
1994). Simply complying with low-level environmental
standards may not require foreign firms to invest in envi-
ronmental programs, as foreign firms are already accus-
tomed to higher environmental standards in their home
countries. Adopting environmental practices proactively in
emerging economies, on the other hand, would lower their
expenses, including investments and costs such as the cost
of environmental training and building formal management
systems and procedures (Cole and Elliott 2005).
In this paper, we will detail how advanced environ-
mental management by foreign firms contributes to better
firm performance in an emerging host country despite the
aforementioned costs. First, foreign firms from advanced
economies with high environmental standards are likely to
possess advanced environmental management systems.
Such systems improve resource productivity in a multitude
of ways, for example, by saving redundant raw materials
and recycling of products. This improved productivity may
lead to positive firm performance (Chen et al. 2014; Dan-
gelico and Pujari 2010; Dowell et al. 2000). Second, for-
eign firms can improve their reputation, legitimacy, and
capabilities when they are committed to environmental
management practices (Berrone et al. 2007; Muhammad
et al. 2014). A positive reputation and legitimacy put
foreign firms in a better position to deal with multiple
stakeholders from the host country and the home country.
For instance, the legitimacy may lessen strict governmental
monitoring of not only environmental management prac-
tices, but also other practices such as workplace safety and
product quality. Firms with legitimacy have an advantage
in raising financial capital, as investors may take their
environmental reputation into consideration when they in-
vest (Jo et al. 2014; Klassen and McLaughlin 1996).
Moreover, foreign firms are able to avoid the risks of latent
costs of external uncertainty in the future by educating their
stakeholders about their environmental practices (Cai and
He 2013). Firms which proactively practice corporate so-
cial responsibility (CSR) receive insurance-like protection
against negative events (Godfrey et al. 2009), and such
CSR activities alleviate financial losses during negative
events such as product recalls (Minor and Morgan 2011).
Compared to local firms, foreign firms are less accepted in
the institutions of the host country, making them vulnerable
to unpredictable institutional pressure.
Environmental Pressure from Host Country
Environmental regulation can differ across industries,
thereby leading to heterogeneous environmental pressure
on firms in different industries. Cowen et al. (1987) show
that the industry to which a firm belongs determines its
corporate social disclosure practices. Firms in consumer-
oriented industries have a greater interest in corporate so-
cial disclosure, as they are able to improve their reputation
and profits by projecting a socially responsible image.
Hackston and Milne (1996) also show that listed firms in
New Zealand regard industry type as an indicator of either
real or potential social pressure and adopt social and en-
vironment disclosure practices accordingly. It is also well
known that the degree of pollution and monitoring vary by
industry (Clarkson et al. 2008; Qi et al. 2013).
Firms also face different stakeholder pressures, de-
pending on the industry to which they belong (Zeng et al.
2012), and this may significantly affect their strategies and
behavior. For instance, firms in industries with greater
regulatory scrutiny attract more attention, and thus demand
more pollution-abatement equipment (Greaker 2006).
Since it is commonly believed that foreign firms have su-
perior pollution-abatement knowledge, skills, and princi-
ples, they are more likely to improve their capabilities to
meet higher regulatory stringency in heavily polluting in-
dustries. This leads to our first hypothesis:
Hypothesis 1 Foreign firms are likely to outperform
comparable local firms when they operate in industries
with greater regulatory scrutiny at the host country.
478 N. Kim et al.
123
Environmental Pressure from Home Country
Stakeholders in the host country apply different standards
and put varying levels of pressure on foreign firms, based
on their country of origin (Spencer and Gomez 2011).
Foreign firms coming from countries with high standards
are expected to build good reputation and commit to re-
sponsible behavior by stakeholders both at home and at the
host. Confronting extra monitoring and scrutiny, such
foreign firms should pay closer attention to their institu-
tional environment, since the loss of legitimacy in one
country can spill over into other countries (Kostova and
Zaheer 1999; Spencer and Gomez 2011).
Given that host country stakeholders pay a different
level of attention to a foreign firm’s environmental practice
based on its country of origin, foreign firms originating
from countries with high environmental pressure have
greater incentives to take an initiative in proactive envi-
ronmental management. Compared to foreign firms coming
from countries with low environmental pressure, these
firms are more likely to be equipped with strong organi-
zational capabilities and internal resources to address en-
vironmental issues, enabling them to satisfy external
stakeholder expectations for firms’ environmental respon-
sibilities (Berrone et al. 2013; Rugman and Verbeke 1998).
Moreover, foreign firms that willingly comply with envi-
ronmental regulations can encourage employees’ involve-
ment reinforcing firms’ environmental product and process
improvement (Chen et al. 2014). Therefore, foreign firms
with superior environmental management systems can be
viewed as possessing latent abilities that can ease high
environmental pressure and develop a sustainable com-
petitive advantage over local firms in the host country,
achieving superior performance (Porter and van der Linde
1995). This line of logic leads to our second hypothesis:
Hypothesis 2 Foreign firms originating from countries
with high environmental pressure are likely to outperform
comparable local firms when they operate in industries
with greater regulatory scrutiny at the host country.
Methods
Data and Sample
We utilize the Annual Industrial Survey Database
(1998–2009) of the National Bureau of Statistics of China
(NBSC) to gather firm-level financial and demographic
indicators. This database contains extensive information on
both local and foreign manufacturing firms in China
(Chang and Xu 2008; Gao et al. 2009). The NBSC collects
financial information on firms, aggregates it, and then
publishes the aggregated information in the official China
Statistics Yearbooks. In 1998, NBSC expanded its data
coverage beyond state-owned enterprises to include foreign
firms with annual sales of at least RMB5 million (ap-
proximately, USD 732,000 using the average exchange rate
in 2009) in the year prior to the survey. We also utilized
regional demographic information such as population, re-
gional gross domestic product (GDP), and infrastructure.
When foreign firms enter China, they either establish a
new subsidiary or invest in the existing local firms. In this
study, we concentrate only on instances of the latter to
separate the issue of entry mode from post-entry perfor-
mances. Chinese law defines foreign firms as firms in
which the foreign partner possesses at least 25 % of the
registered capital for equity investment. The country of
origin data for foreign investors are from the Survey of
Foreign-Invested Enterprises conducted by NBSC, and the
home country environmental pressure data are from the
survey of ISO 14001 certification.
We restrict our sample to firms for which we have at
least five consecutive years of observations, from year t -
2 through year t ? 2, where the foreign acquisition of a
local firm takes place in the year t. We track performance
changes from year t - 2 through year t ? 2. Among the
140,412 local firms that we track for at least five con-
secutive years, 1023 local firms received foreign invest-
ment. As we require data for up to 2 years prior to and
2 years after the investment, the foreign-acquired firms in
our sample received the investment between 2000 and
2007. We match each of these firms with the most similar
local firm that did not receive foreign investment, within
the same ownership type, three-digit SIC industry, pro-
vince, and year.
Variables
In this paper, we use return on assets (ROAs) as a measure
of firm performance, defined as net income divided by total
assets. ROA is the most commonly used measure of prof-
itability (Hart and Ahuja 1996; King and Lenox 2002;
Russo and Fouts 1997).
We measure the following province-level indicators to
include the determinants of foreign acquisition. Province
size is measured by population. Province income is defined
as regional GDP per capita. Infrastructure is measured by
road density in each province, which is defined as high-
ways (km) divided by land area (km 2 ), as proposed by
Dean et al. (2009).
We include multiple firm characteristics in an attempt to
explain the foreign acquisition decision. To control for
size-related factors leading to acquisition, we measure firm
size using the logarithm of total assets. Fixed assets ratio is
measured by dividing the book value of fixed assets by that
Environmental Pressure and the Performance of Foreign Firms 479
123
of total assets, to indicate the local firm’s capital intensity.
Intangible assets ratio is measured by dividing the book
value of intangible assets by that of total assets, to reflect
the relative importance of the local firm’s intangible assets.
Export ratio is defined as export sales divided by total
sales, reflecting the firm’s export orientation. Firm age is
defined as the number of calendar years since the local firm
was established. We include firm age to control for the
maturity of local firms. We define leverage as total debt
divided by total assets to estimate the firm’s financial sta-
bility. We measure the ownership structure of local firms in
terms of the ownership share held by the state, collectives,
corporations, and individuals. State owned and collective
local firms are less attractive to foreign firms, as they have
weak internal management systems and are more closely
monitored and regulated by government. Year dummies
and industry dummies are also included.
To investigate how different levels of environmental
pressure affect the performance of foreign-acquired local
firms vis-à-vis the remaining local firms, we conduct em-
pirical analysis on subsamples. We categorize industries
into two segments: industries with greater regulatory
scrutiny, and industries with less regulatory scrutiny. Na-
tional Environmental Protection Agency issued executive
orders 2003:101 and 2007:105, under which they required
firms in selected ‘‘environmentally sensitive industries’’ to
publish their environmental records for the year when they
applied for listing or refinancing in the stock market (Zeng
et al. 2012). Environmentally sensitive industries are
broadly categorized as follows: food and drink; textile,
clothing, and fur; paper and printing; petroleum, chemistry,
and plastic; metal and nonmetal mining; and medicine and
biological products. To be as precisely as possible, we
based our categorization using a four-digit SIC provided by
the executive orders of 2008:373.
The Industrial Survey Database provides whether for-
eign ownership comes from the Greater China region
(Hong Kong, Macau, and Taiwan) or elsewhere. In terms
of country of origin, Hong Kong is the leading investment
origin with 45.6 % of all foreign invested firms in our data,
followed by Taiwan (12.1 %), Japan (10.9 %), the US
(7.9 %), Korea (4.2 %), Singapore (3.27 %), Germany
(1.57 %), the UK (1.72 %), Macau (1.2 %), and Australia
(0.91 %). These top 10 origins account for 90.1 % of all
foreign firms in our dataset. Based on the fraction of ISO
14001-certified firms over total number of firms in a given
country, we classify that foreign investment from Greater
China region as home countries with low environmental
pressure, and other countries as home countries with high
environmental pressure.
Since foreign firms are only able to make their invest-
ment decision on the basis of financial reports from the
previous year, we lagged all firm-level characteristics from
the year before investment. To deal with outliers, we
deleted observations with extreme performance values:
firms with ROAs greater than 100 % or less than -50 %,
firms with accumulated ROA differences beyond 25 %,
and firms with sales growth in the top 1 % and bottom 1 %.
We winsorize 1 % of observations at both tails to address
outliers for ratio variables. Table 1 provides the descriptive
statistics and pairwise correlations for the variables used in
our analysis.
Propensity-Score Matching Coupled with DID
The endogeneity problem in foreign investment decisions
makes it difficult to compare the performance of firms with
different strategic choices (Shaver 1998). The effect of
foreign ownership on performance cannot be studied by
merely comparing the performance of local and foreign
firms, because foreign parents may prefer to invest in more
promising local firms. This makes it difficult to determine
whether the firm’s performance is due to its inherent
characteristics or due to its foreign ownership. Thus, it is
critical to construct more reliable comparison groups be-
tween local firms and foreign firms. The propensity-score
matching approach allows us to address this endogeneity
issue (Arnold and Javorcik 2009; Heckman et al. 1997;
Rosenbaum and Rubin 1983).
In addition to endogeneity, propensity-score matching
and the DID method help us address limited data avail-
ability with respect to environmental performance. We
attempt to investigate the effect of environmental man-
agement on firm performance by utilizing a linkage be-
tween environmental pressure and environmental
management practice based on previous research. Envi-
ronmental pressure from various stakeholders is likely to
cause firms to engage more proactively in environmental
practices when they have both the motivation and the ca-
pability to do so (Berrone et al. 2013). Anecdotal evidence
from emerging economies, including China, also suggests
that such practices result in better environmental perfor-
mance. Further, many studies have argued for, and
demonstrated, a positive link between environmental per-
formance and firm performance (King and Lenox 2002;
Russo and Fouts 1997). However, due to the intrinsic
sensitivity of such data, we could not obtain information on
firm-level environmental practices or performance data at
national scale. Therefore, by showing the linkage between
environmental pressure and firm performance, we design
our empirical model to find the effects of environmental
management on firm performance without requiring firm-
level environmental data.
In propensity-score matching, the treatment and control
groups are constructed on the basis of scalar ‘‘similarity,’’
calculated from various observable firm characteristics
480 N. Kim et al.
123
T a b le
1 S u m m a ry
st a ti st ic s a n d c o rr e la ti o n s
V a ri a b le s
M S D
1 2
3 4
5 6
7 8
9 1 0
1 1
1 2
1 3
1 4
1 F o re ig n a c q u is it io n (t , % )
0 .4 8 8
6 .9 7 2
1 .0 0 0
2 P ro v in c e si z e (t )
5 7 1 5 .0 6 4
2 4 9 7 .6 2 6
0 .0 2 3 *
1 .0 0 0
3 P ro v in c e in c o m e le v e l (t )
2 .0 9 4
1 .2 5 4
0 .0 0 5 *
- 0 .2 7 4 *
1 .0 0 0
4 In fr a st ru c tu re
(t )
0 .6 8 0
0 .3 6 3
0 .0 0 5 *
0 .0 1 7 *
0 .7 8 3 *
1 .0 0 0
5 R O A
(t – 2 , % )
4 .7 0 7
9 .4 7 6
0 .0 0 4 *
0 .0 4 1 *
0 .1 2 5 *
0 .1 3 7 *
1 .0 0 0
6 R O A
(t – 1 , % )
4 .6 8 3
8 .4 9 7
0 .0 0 7 *
0 .0 9 0 *
0 .1 1 2 *
0 .1 6 1 *
0 .6 6 3 *
1 .0 0 0
7 F ir m
si z e (t -
1 )
9 .8 6 9
1 .3 6 8
0 .0 3 5 *
- 0 .0 1 5 *
- 0 .0 7 4 *
- 0 .0 7 6 *
- 0 .1 0 9 *
- 0 .1 3 4 *
1 .0 0 0
8 F ix e d a ss e ts
ra ti o (t – 1 ,
% )
3 5 .1 5 2
2 0 .0 1 3
- 0 .0 0 5 *
0 .0 4 3 *
- 0 .1 9 4 *
- 0 .1 3 5 *
- 0 .0 5 0 *
- 0 .0 2 0 *
0 .0 6 7 *
1 .0 0 0
9 In ta n g ib le
a ss e ts
ra ti o
(t – 1 , % )
2 .8 3 3
6 .8 3 1
- 0 .0 0 2
0 .0 1 9 *
- 0 .0 2 5 *
- 0 .0 3 0 *
- 0 .0 7 6 *
- 0 .0 8 4 *
0 .1 3 6 *
- 0 .0 6 6 *
1 .0 0 0
1 0
E x p o rt ra ti o (t – 1 , % )
1 2 .2 3 1
2 8 .6 9 8
0 .0 4 9 *
0 .0 0 0
0 .0 9 9 *
0 .0 3 6 *
0 .0 3 1 *
0 .0 2 3 *
- 0 .0 5 4 *
- 0 .0 6 5 *
0 .0 1 7 *
1 .0 0 0
1 1
F ir m
a g e (t -
1 )
1 2 .9 0 7
1 2 .8 2 8
- 0 .0 2 0 *
- 0 .0 4 0 *
- 0 .1 9 0 *
- 0 .1 7 2 *
- 0 .1 7 1 *
- 0 .1 8 4 *
0 .2 4 6 *
0 .0 5 8 *
0 .0 2 1 *
- 0 .0 6 8 *
1 .0 0 0
1 2
L e v e ra g e (t – 1 , % )
6 2 .8 9 5
2 5 .9 2 3
- 0 .0 1 2 *
0 .0 3 7 *
- 0 .0 5 8 *
- 0 .0 5 2 *
- 0 .3 1 4 *
- 0 .3 3 1 *
0 .0 4 0 *
- 0 .1 1 6 *
- 0 .0 2 2 *
0 .0 2 3 *
0 .1 3 1 *
1 .0 0 0
1 3
C o ll e c ti v e fi rm
(t -
1 )
0 .2 0 6
0 .4 0 4
0 .0 0 1
- 0 .0 0 5 *
- 0 .1 1 9 *
- 0 .1 1 9 *
0 .0 4 7 *
0 .0 4 1 *
- 0 .0 8 8 *
- 0 .0 5 7 *
- 0 .0 8 9 *
- 0 .0 2 6 *
0 .0 8 5 *
0 .0 0 6 *
1 .0 0 0
1 4
P ri v a te
fi rm
(t -
1 )
0 .4 2 3
0 .4 9 4
0 .0 0 2
0 .0 7 5 *
0 .2 6 5 *
0 .2 6 4 *
0 .1 1 6 *
0 .1 3 4 *
- 0 .2 3 4 *
- 0 .0 2 7 *
0 .0 0 7 *
0 .1 1 1 *
- 0 .3 6 1 *
- 0 .0 5 5 *
- 0 .4 3 5 *
1 .0 0 0
1 5
In c o rp o ra te d fi rm
(t -
1 )
0 .2 3 6
0 .4 2 4
0 .0 0 9 *
0 .0 0 5 *
- 0 .0 2 9 *
- 0 .0 3 0 *
- 0 .0 2 6 *
- 0 .0 3 0 *
0 .2 7 2 *
- 0 .0 0 9 *
0 .1 1 7 *
- 0 .0 3 3 *
- 0 .0 1 3 *
- 0 .0 3 3 *
- 0 .2 8 2 *
- 0 .4 7 5 *
N =
3 9 5 ,3 6 1
* C o rr e la ti o n c o e ffi c ie n t is st a ti st ic a ll y si g n ifi c a n t a t th e 5 %
le v e l
Environmental Pressure and the Performance of Foreign Firms 481
123
(Heckman et al. 1997; Rosenbaum and Rubin 1983). In this
study, the treatment group is composed of local firms that
received foreign investment, while the control group is
composed of local firms that did not. Because the matched
firms from the treatment and control groups have similar
ex-ante likelihood of receiving foreign investment, we can
attribute the performance difference between foreign-
acquired local firms and matched local firms to foreign
ownership.
In a probit model explaining foreign acquisition deci-
sion, we consider a vector of observable firm characteris-
tics: profitability, firm size, firm age, leverage, export ratio,
intangible and fixed assets ratios, local firm types, province
size, province income level, and infrastructure. We also
Table 2 Probit regression results fora foreign investor’s decision to acquire a local firm
Dependent variable (1) (2) (3) (4) (5)
Foreign acquisition All firms Industries with greater
regulatory scrutiny
Industries with less
regulatory scrutiny
Origins with high
environmental
pressure
Origins with low
environmental
pressure
Province size (t) 6.6 9 10 -5 ** 5.3 9 10
-5 ** 7.1 9 10
-5 ** 4.4 9 10
-5 ** 5.8 9 10
-5 **
(0.000) (0.000) (0.000) (0.000) (0.000)
Province income level (t) 0.088** 0.108** 0.084** 0.077* 0.129**
(0.016) (0.028) (0.019) (0.038) (0.038)
Infrastructure (t) -0.032 -0.063 -0.024 -0.087 -0.022
(0.053) (0.094) (0.064) (0.123) (0.129)
ROA (t – 2) -0.005** -0.002 -0.005** -0.003 -0.002
(0.001) (0.002) (0.002) (0.003) (0.003)
ROA (t - 1) 0.003* 0.004 0.003* 0.004 0.003
(0.001) (0.003) (0.002) (0.004) (0.003)
Firm size (t - 1) 0.177** 0.177** 0.179** 0.199** 0.133**
(0.007) (0.012) (0.008) (0.015) (0.015)
Fixed assets ratio (t - 1) -0.001 -0.001 -0.001 -0.000 -0.000
(0.000) (0.001) (0.001) (0.001) (0.001)
Intangible assets ratio (t - 1) -0.006** -0.002 -0.007** 0.002 -0.006 �
(0.001) (0.002) (0.002) (0.003) (0.003)
Export ratio (t - 1) 0.005** 0.006** 0.005** 0.006** 0.005**
(0.000) (0.001) (0.000) (0.001) (0.001)
Firm age (t - 1) -0.013** -0.012** -0.014** -0.012** -0.011**
(0.001) (0.002) (0.001) (0.002) (0.002)
Leverage (t - 1) -0.002** -0.000 -0.003** -0.000 0.000
(0.000) (0.001) (0.000) (0.001) (0.001)
Collective firm (t - 1) 0.247** 0.238** 0.253** 0.250** 0.188*
(0.039) (0.070) (0.047) (0.096) (0.092)
Private firm (t - 1) 0.210** 0.225** 0.207** 0.200** 0.211*
(0.039) (0.072) (0.047) (0.098) (0.094)
Incorporated firm (t - 1) 0.170** 0.154* 0.178** 0.125 0.151 �
(0.038) (0.068) (0.046) (0.091) (0.091)
Constant -5.259** -5.314** -5.241** -5.379** -5.060**
(0.161) (0.237) (0.175) (0.281) (0.289)
Industry FE Included Included Included Included Included
Year FE Included Included Included Included Included
Pseudo-R 2
0.112 0.102 0.117 0.115 0.092
v2 2745 696.6 2057 416.8 360
(d.f.) 170 68 125 62 63
Observations 395,361 135,042 260,244 129,281 127,890
Standard errors in parentheses � , *, ** Statistical significance at the 10, 5, and 1 % levels, respectively
482 N. Kim et al.
123
consider industry and year fixed effects. With the propen-
sity-score calculated from the probit model, we match
foreign-acquired local firms with remaining local firms
within the same ownership type, three-digit SIC industry,
province, and year. It is essential to assess how well the
propensity-score matching procedure is generated from the
probit model (Dehejia and Wahba 2002; Smith and Todd
2005). We perform balancing tests to ensure that firms in
the treatment and control groups are not statistically dif-
ferent from each other prior to the treatment (please see the
‘‘Appendix’’ section for balancing test results).
We use the DID method to compare the performance of
foreign-acquired local firms with the remaining local firms
in order to remove the effect of unobservable nonrandom
elements, which can affect the performance of both groups.
First, we compute differences in ROA from year t - 1 for
each firm. Then, we compare the difference between the
treatment group and the control group.
Results
Table 2 displays our probit regression results for the for-
eign acquisition decision on local firms. The first column
reports coefficient estimates from the regression using the
entire sample. The second and third columns report coef-
ficient estimates from subsamples in industries with greater
regulatory scrutiny, and industries with less regulatory
scrutiny. The fourth and fifth columns report coefficient
estimates from subsamples of high environmental pressure
origin and low environmental pressure origin, among in-
dustries with greater regulatory scrutiny. All probit re-
gression results show a consistent pattern despite being
calculated with different samples.
As shown by Table 2, province size is positively corre-
lated with foreign acquisition, which implies that foreign
acquisition is more likely in larger provinces in China.
Province income has a positive correlation with foreign
acquisition, as high-income provinces tend to have advanced
economic institutions that provide foreign firms with fa-
vorable business environments. Infrastructure is not sig-
nificantly associated with the acquisition decision after
controlling for the effect of province size and income levels.
However, the coefficient is negatively correlated with for-
eign acquisition in industries with less regulatory scrutiny.
Among the characteristics of local firms, higher ROAs in
the previous year tend to increase the likelihood of acqui-
sition by foreign investors. This is attributable to the fact that
foreign investors tend to seek local firms with sound prof-
itability. On the other hand, ROA 2 years ago is negatively
associated with foreign acquisition. This implies that foreign
investors prefer to invest in local firms with increasing
profitability, since we have already controlled for ROA in
year t - 1. Larger local firms are more likely to be acquired,
suggesting that foreign parents prefer local firms with scale
economies. Fixed assets ratio is not significant. Intangible
assets ratio is negatively associated with the likelihood of
foreign acquisition, because local firms with sufficient in-
tangible assets tend to be independent. Export ratio is
positively associated with the likelihood of foreign acqui-
sition, as foreign investors prefer local firms that have access
to the global market. Firm age is negatively correlated with
the acquisition decision, as foreign parents may prefer firms
with fewer legacies, so that they can be restructured and
integrated smoothly. Leverage is mostly negatively associ-
ated with the investment decision, indicating that foreign
parents try to avoid incurring additional liabilities. Among
local firm types, collective, private, and incorporated local
firms are more likely to be acquired, meaning that these
types of local ownership are favored over state-owned firms
by foreign investors.
Table 3 shows the results from the DID estimation of
foreign-acquired local firms and remaining local firms,
with the matching condition of propensity-score radius
being 0.001 within the same ownership type, the three-digit
SIC industry, the same province, and the same year. This
procedure creates 1023 matches between foreign-acquired
local firms and remaining local firms.
The average treatment effect on the treated (ATT)
measures the difference in cumulative changes in ROAs
between the two groups since the year before the invest-
ment (year t - 1). The results show that in the entire
sample, 1 year after acquisition, foreign-acquired local
firms experience an average increase in ROA of 0.670
percentage point over matched firms that remain local. This
estimate is significant at the 5 % level. The difference
2 years after acquisition is 0.677 percentage point, which is
also significant at the 5 % level.
Table 3 also displays performance differences between
foreign-acquired local firms and the remaining local firms
for subsamples with different levels of environmental
pressure. For the subsample of industries with greater
regulatory scrutiny, the increase in ROA for foreign-ac-
quired local firms is greater than that of the remaining local
firms by 1.370 percentage points in the first year after ac-
quisition and by 2.029 percentage points in the second year
after acquisition. These ATT values are significant at 5 and
1 % levels, respectively. For the subsample of industries
with less regulatory scrutiny, differences in ROAs are not
significant at all. These results supports hypothesis 1 that
foreign firms are likely to outperform comparable local
firms when they operate in industries with greater regula-
tory scrutiny at the host country.
Regarding the environmental pressure originating from
the home country, when foreign firms from high environ-
mental pressure countries target local firms in industries with
Environmental Pressure and the Performance of Foreign Firms 483
123
T a b le
3 P e rf o rm
a n c e s o f fo re ig n -a c q u ir e d fi rm
s v e rs u s re m a in in g lo c a l fi rm
s
R O A
(% ) o v e r ti m e
W h o le
sa m p le
In d u st ri e s w it h g re a te r re g u la to ry
sc ru ti n y
In d u st ri e s w it h le ss
re g u la to ry
sc ru ti n y
Y e a r
t – 2
t -
1 t
t ?
1 t ?
2 Y e a r
t – 2
t -
1 t
t ?
1 t ?
2 Y e a r
t – 2
t -
1 t
t ?
1 t ?
2
T re a te d
5 .4 2 6
5 .4 8 3
5 .7 3 7
6 .3 9 7
6 .1 8 7
T re a te d
4 .6 1 2
5 .0 9 5
5 .4 4 2
6 .5 1 8
6 .6 7 4
T re a te d
5 .5 2 8
5 .5 0 6
5 .7 8 9
6 .1 2 1
5 .7 2 2
C o n tr o ls
5 .1 7 0
5 .3 3 3
5 .1 6 0
5 .5 7 8
5 .3 6 0
C o n tr o ls
5 .4 5 4
5 .5 3 9
5 .0 0 5
5 .5 9 2
5 .0 8 9
C o n tr o ls
5 .3 1 2
5 .3 8 7
5 .5 7 7
5 .6 2 6
5 .2 3 5
A T T
0 .4 2 8
0 .6 7 0 *
0 .6 7 7 *
A T T
0 .8 8 2
1 .3 7 0 *
2 .0 2 9 * *
A T T
0 .0 9 3
0 .3 7 6
0 .3 6 8
S E
0 .2 7 1
0 .3 1 9
0 .3 3 5
S E
0 .5 4 0
0 .6 2 5
0 .6 6 8
S E
0 .3 2 5
0 .3 6 6
0 .3 8 2
N 1 0 2 3
1 0 2 3
1 0 2 3
1 0 2 3
1 0 2 3
N 2 9 2
2 9 2
2 9 2
2 9 2
2 9 2
N 7 1 9
7 1 9
7 1 9
7 1 9
7 1 9
A m o n g th e in d u st ri e s w it h g re a te r re g u la to ry
sc ru ti n y
O ri g in s w it h h ig h e n v ir o n m e n ta l p re ss u re
O ri g in s w it h lo w
e n v ir o n m e n ta l p re ss u re
Y e a r
t – 2
t -
1 t
t ?
1 t ?
2 Y e a r
t – 2
t -
1 t
t ?
1 t ?
2
T re a te d
4 .2 1 3
4 .6 2 6
4 .8 9 6
6 .8 6 1
6 .2 9 8
T re a te d
5 .2 9 4
5 .9 6 1
6 .2 5 4
6 .8 3 5
7 .1 1 8
C o n tr o ls
3 .3 4 9
4 .5 1 1
4 .1 4 0
4 .0 6 3
3 .8 8 5
C o n tr o ls
5 .2 3 1
4 .6 3 1
4 .4 4 9
5 .2 8 7
4 .7 6 5
A T T
0 .6 3 6
2 .6 7 8 * *
2 .2 9 4 * *
A T T
0 .4 7 5
0 .2 2 8
1 .0 2 3
S E
0 .7 8 6
0 .8 2 6
0 .8 8 7
S E
0 .6 3 6
0 .7 9 2
0 .8 0 9
N 1 4 1
1 4 1
1 4 1
1 4 1
1 4 1
N 1 9 3
1 9 3
1 9 3
1 9 3
1 9 3
� , * , * * S ta ti st ic a l si g n ifi c a n c e a t th e 1 0 , 5 , a n d 1 %
le v e ls , re sp e c ti v e ly
484 N. Kim et al.
123
greater regulatory scrutiny, the increases in ROAs for for-
eign-acquired local firms are greater than those for remaining
local firms by 2.678 percentage points in the first year after
acquisition and 2.294 percentage points in the second year
after acquisition. Both of these ATT values are significant at
the 1 % level. When foreign firms from low environmental
pressure origins target local firms in industries with greater
regulatory scrutiny, differences in ROA increases are not
statistically significant at all. These results supports hy-
pothesis 2 that foreign firms originating from countries with
high environmental pressure are likely to outperform com-
parable local firms when they operate in industries with
greater regulatory scrutiny at the host country (Figs. 1, 2).
Discussion and Conclusion
As stakeholder management becomes more important for
multinational firms (Bouquet and Deutsch 2008; Buysse
and Verbeke 2003; Rodriguez et al. 2006), firms seek en-
vironmental knowledge and practices to gain legitimacy
(King and Lenox 2002). In this study, we evaluate the
effect of environmental pressure from the host country on
the firm performance of foreign firms, with an empirical
analysis of foreign-acquired firms vis-à-vis local firms in
China. We believe that environmental capability is an
important, yet under-emphasized part of the foreign-own-
ership advantage as well as a means to mitigate the
3.5
4
4.5
5
5.5
6
6.5
7
7.5
Foreign acquired firms Local firms
3.5
4
4.5
5
5.5
6
6.5
7
7.5
Foreign acquired firms Local firms
Industries with greater regulatory scrutiny Industries with less regulatory scrutiny
Fig. 1 Performance difference between foreign-acquired firms and local firms by industry, adjusted for difference-in-differences in year t - 1
3.5
4
4.5
5
5.5
6
6.5
7
7.5
Foreign acquired firms Local firms
3.5
4
4.5
5
5.5
6
6.5
7
7.5
Foreign acquired firms Local firms
Countries with high environmental pressure Countries with low environmental pressure
Fig. 2 Performance difference between foreign-acquired firms and local firms by home country environmental pressure in industries with greater regulatory scrutiny, adjusted for difference-in-differences in year t - 1
Environmental Pressure and the Performance of Foreign Firms 485
123
liabilities of foreignness. To avoid the endogeneity prob-
lem in comparing the performances of foreign-acquired
and local firms, we use propensity-score matching in con-
junction with the DID approach. We identify a substantial
increase in the performance of foreign-acquired local firms
compared to the remaining local firms in industries with
greater regulatory scrutiny. On the whole, this empirical
result provides evidence that environmental management
capabilities can be a valuable asset in enhancing the per-
formance of foreign firms in an emerging economy. We
also find that this increase in performance of foreign-ac-
quired local firms over local firms in industries with greater
regulatory scrutiny is due to the acquirers from countries
with high environmental pressure. This finding suggests
that foreign firms, accustomed to complying with high
environmental standards at home, can leverage their envi-
ronmental capabilities in differentiating themselves from
local competitors in a circumstance with high environ-
mental pressure at the host.
This study contributes to the environmental management
literature by proposing a link between environmental man-
agement and firm performance. Since firm-level environ-
mental data are not available on a national scale, we designed
our research using a recently developed empirical method
and addressed our research question indirectly. In doing so,
we were able to confirm that foreign-acquired firms, espe-
cially those facing higher environmental pressure at the host
country, might be able to turn their strengths in environ-
mental management into superior performance. This ad-
vantage seems particularly significant when the foreign firm
is accustomed to face high level of environmental pressure at
home. We expect that these findings will highlight the ben-
efits of proactive environmental management for foreign
firms operating in emerging economies.
Among managerial and policy implications, our study
suggests that foreign firms should take a keen interest in the
natural environment of their host country and invest in green
technologies to gain competitiveness, as pollution abatement
helps to lower the liability of foreignness. Hart (1995) and
Porter and van der Linde (1995) propose that foreign firms
should develop an environmental management strategy, in
addition to a conventional corporate strategy, to gain a
competitive advantage. In emerging economies, where en-
vironmental issues are growing increasingly important,
foreign firms with environment-friendly reputations are
likely to be welcomed by stakeholders and will have more
opportunities to gain a favorable position. Therefore, man-
agers in foreign firms need to understand that bringing in
environmental management systems and knowledge will
benefit them more than merely seeking pollution havens.
This study also has meaningful implications for public
policy. In emerging economies, environmental policy makers
often cast doubt on the environmental impact of foreign
investment,basedonthepollutionhavenhypothesis(Coleand
Elliott 2005; Walter 1982). However, as long as the govern-
ment is intent on economic development, policymakers might
as well take decisions that attract foreign firms with superior
environmental capabilities, while strictly enforcing environ-
mental regulations. In doing so, the government can improve
the environmental conditions compared to the situation if they
attempt to pursue economic development by relying solely on
domestic firms. Further, it is possible that the advanced en-
vironmental technologies of foreign firms will spill over to
other domestic firms that are facing similar environmental
pressures, as they would want to catch up with foreign firms.
The existence of such spillover effects from foreign firms to
local firms could be an interesting topic for future research.
We would like to acknowledge a few limitations of the
current study, which we hope to address in the future. First,
although we examine whether foreign firms perform better
than local firms under greater environmental pressure, our
research design does not allow us to include foreign firms
that enter through greenfield investments. In comparing
foreign firms and local firms, we only consider foreign firms
acquiring an existing local firm. In order to circumvent the
endogeneity problem, we needed a treatment, and that ne-
cessity limited our sample size in a sense. Second, as our
study uses aggregate environmental data due to the limitation
on data availability, we cannot observe the firm-level envi-
ronmental practices and environmental performances di-
rectly. We encourage future researchers to collect firm-level
environmental data and identify the environmental man-
agement practices of firms to investigate mechanisms that
can enhance firm performance in a more direct way. Finally,
since we do not know the identity of the foreign investor, we
need to approximate the quality of environmental manage-
ment by the foreign investor by the country-level environ-
mental pressure. The availability of sustainability reports by
many multinational firms should enable future researchers to
gather enough information on firm-level environmental
performance data for firms undertaking FDI. Matching firm-
level environmental performance data of the foreign investor
with firm-level environmental performance data of the local
target company can further enhance our understanding of
environmental impact of FDI in the future.
Acknowledgments Jon J. Moon acknowledges that this work was supported by the National Research Foundation of Korea Grant
funded by the Korean Government (NRF-2013S1A5A8023591).
Haitao Yin wishes to thank the financial supports from the National
Natural Science Foundation of China (No. 71202071, 71322305 and
71421002).
Appendix: Results for Balancing Tests
See Tables 4, 5, 6, 7 and 8.
486 N. Kim et al.
123
Table 4 Balancing test results (whole sample)
Variables t-Test on the mean of each variable
Treatment Control t-stat p-value
ROA (t – 2, %) 5.426 5.170 0.650 0.514
ROA (t – 1, %) 5.483 5.333 0.420 0.677
Firm size (t - 1) 10.137 10.052 1.540 0.124
Fixed assets ratio (t – 1, %) 33.807 33.042 0.880 0.378
Intangible assets ratio (t – 1, %) 2.831 2.652 0.630 0.526
Export ratio (t – 1, %) 23.581 24.211 -0.380 0.705
Firm age (t - 1) 10.029 9.601 0.980 0.326
Leverage (t – 1, %) 60.394 59.663 0.680 0.497
N 1023 1023
Hotelling test T 2
F-stat p [ F N
5.071 0.632 0.752 2046
Table 5 Balancing test results (industries with greater
regulatory scrutiny)
Variables t-Test on the mean of each variable
Treatment Control t-stat p-value
ROA (t – 2, %) 4.612 5.454 -1.160 0.248
ROA (t – 1, %) 5.095 5.539 -0.570 0.566
Firm size (t - 1) 10.495 10.376 1.110 0.268
Fixed assets ratio (t – 1, %) 37.218 36.417 0.520 0.604
Intangible assets ratio (t – 1, %) 3.079 3.415 -0.570 0.571
Export ratio (t – 1, %) 12.013 12.179 -0.080 0.939
Firm age (t - 1) 10.281 8.973 1.570 0.116
Leverage (t – 1, %) 61.862 62.933 -0.540 0.588
N 292 292
Hotelling test T 2
F-stat p [ F N
6.112 0.755 0.643 584
Table 6 Balancing test results (industries with less regulatory
scrutiny)
Variables t-Test on the mean of each variable
Treatment Control t-stat p-value
ROA (t – 2, %) 5.528 5.312 0.460 0.644
ROA (t – 1, %) 5.506 5.387 0.290 0.768
Firm size (t - 1) 9.986 9.935 0.780 0.434
Fixed assets ratio (t – 1, %) 31.428 31.108 0.320 0.752
Intangible assets ratio (t – 1, %) 2.700 2.192 1.760 0.078
Export ratio (t – 1, %) 27.763 27.470 0.140 0.889
Firm age (t - 1) 9.689 9.369 0.630 0.526
Leverage (t – 1, %) 60.075 59.709 0.290 0.773
N 719 719
Hotelling test T 2
F-stat p [ F N
4.446 0.553 0.817 1438
Environmental Pressure and the Performance of Foreign Firms 487
123
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Table 8 Balancing test results (countries with low
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Variables t-Test on the mean of each variable
Treatment Control t-stat p-value
ROA (t – 2, %) 5.294 5.231 0.07 0.945
ROA (t – 1, %) 5.961 4.631 1.46 0.146
Firm size (t - 1) 10.524 10.443 0.57 0.571
Fixed assets ratio (t – 1, %) 36.532 36.106 0.22 0.825
Intangible assets ratio (t – 1, %) 2.597 2.989 -0.57 0.569
Export ratio (t – 1, %) 13.894 14.124 -0.08 0.937
Firm age (t - 1) 10.342 9.731 0.59 0.556
Leverage (t – 1, %) 62.534 62.123 0.160 0.875
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4.289 0.526 0.827 386
Table 7 Balancing test results (countries with high
environmental pressure)
Variables t-Test on the mean of each variable
Treatment Control t-stat p-value
ROA (t – 2, %) 4.2133 3.349 0.94 0.346
ROA (t – 1, %) 4.6264 4.511 0.12 0.906
Firm size (t - 1) 10.711 10.643 0.42 0.675
Fixed assets ratio (t – 1, %) 38.888 37.008 0.82 0.413
Intangible assets ratio (t – 1, %) 4.0785 3.923 0.17 0.863
Export ratio (t – 1, %) 10.491 8.917 0.58 0.56
Firm age (t - 1) 10.986 9.887 0.840 0.404
Leverage (t – 1, %) 61.3 65.643 -1.460 0.145
N 141 141
Hotelling test T 2
F-stat p [ F N
4.378 0.534 0.831 282
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Journal of Business Ethics is a copyright of Springer, 2016. All Rights Reserved.
- Environmental Pressure and the Performance of Foreign Firms in an Emerging Economy
- Abstract
- Introduction
- Theory and Hypotheses
- Environmental Pressure from Host Country
- Environmental Pressure from Home Country
- Methods
- Data and Sample
- Variables
- Propensity-Score Matching Coupled with DID
- Results
- Discussion and Conclusion
- Acknowledgments
- Appendix: Results for Balancing Tests
- References