Is India a pollution haven? Evidence from cross-border mergers and acquisitions

A crucial component of the combating climate change is the reduction of carbon emissions (CO2). Based on the pollution haven hypothesis, existing literature claims that to mitigate the carbon emissions, multinational enterprises undertake cross-border mergers and acquisitions (CBA), a form of foreign direct investment, in emerging economies where the regulatory institution is weak and make such host countries a pollution haven victim. In this background, we examine whether India is potentially a pollution haven for firms who prefer the CBA route by investigating the impact of the home country's CO2 emissions on CBA decisions involving the number, volume, and stake acquired in an emerging host country, India. Additionally, we use India's corruption as an indicator of institutional weakness to examine its moderation effect. We used a net sample of 796 countrypair-year observations to examine the volume and number of CBA and 3796 net deal-level data to examine stake acquisition from a gross sample of 5641 CBA data sourced from the Thomson Reuters EIKON database covering a study period from 1990 to 2020. Our results from Negative Binomial and Tobit regression models find that less carbon-emitting countries frequently undertake CBA activities with large volumes in India. Moreover, our Logit regression model results show that high emitting country firms prefer full equity control in Indian firms. Furthermore, India's corruption makes this relationship much more potent by significantly moderating the impact of the home country's CO2 emissions on CBA decisions. These results indicate that India is potentially a pollution haven for multinational enterprises from high emitting countries. Furthermore, we provide specific policy implications based on these results and add scientific value to the academic community, scholars, environmentalists, regulatory bodies, and policymakers.