The Impact of Environmental Regulation on Location’s Choice of Cross-Border Mergers and Acquisitions

Abstract

This study contributes to the literature seeking to test the pollution haven’s hypothesis (PHH), by focusing on the influence of environmental policy on the location’s decision of cross-border mergers and acquisitions (M&As). To this end, we estimate a gravity model using an original bilateral database for the extensive margin of M&A among 34 developed and emerging countries during the period 1995-2015. Reached evidence confirms only part of the pessimist predictions. A more stringent environmental regulation would not boost outward M&As to the extent that it originates from countries with relatively good institutional quality. In contrast, in countries with relatively high level of corruption, the laxer the environmental regulation, the higher the number of inward M&As. However, reducing corruption can compensate the competitiveness losses associated with the compliance of a stricter environmental regulation.