Are environmentally responsible firms less vulnerable when investing abroad? The role of reputation

Globalization allows multinational firms to locate strategically the polluting activities in lax countries. This paper revisits the empirical evidence by exploiting heterogeneity in firms' environmental image. While locating in countries with weak environmental standards is likely to be detrimental for a firm's image and reputation, investing in corporate environmental responsibility can help firms to convince consumers that they have good environmental practices, even when investing in the "dirty" countries. Exploiting an original database that records an index of environmental responsibility for large European firms, we find that the firms viewed as environment-friendly are more often than others located in countries with weak environmental regulations. We show that our findings are not likely to be driven by omitted variables bias, specific sectors nor particular countries. Interestingly, this relationship is observed only among the firms with a well established reputation for environmental responsibility. Journal of Comparative Economics 45 (2017) 520-543. Univ. Paris 1 Pantheon Sorbonne, CES, CNRS UMR 8174, Maison des Sciences Economiques, 106-112 Boulevard de l'Hopital, 75647 Paris cedex 13, France; University of Lausanne (HEC) - DEEP, Switzerland; Universite Paris 13 - CEPN and CNRS, France. (C) 2016 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved.