The impact of OFDI on firm pro-environmental behavior: Evidence from China

Abstract

Outward Foreign Direct Investment (OFDI) is a crucial decision in the internationalization strategy of firms and they confront diversified environmental policies and practices of host countries, when engaging in cross-border investments. However, there is a lack of research to investigate whether foreign direct investment (OFDI) is an important factor affecting the environmental commitment of firms. This study aims to empirically analyze the impact and mechanism by which firm outward foreign direct investment (OFDI) influences pro-environmental commitments, utilizing data collected from Chinese listed companies between 2010 and 2020. The results show: 1) there is a significant positive relationship between firm OFDI and pro-environmental commitments; 2) mechanistic tests show that the OFDI can promote pro-environmental commitments through two channels: public attention and technological learning capacity; 3) heterogeneity analysis reveals that the green effects of OFDI are more pronounced firms with institutional investors and state ownership, as well as in firms situated in host countries with more stringent environmental regulations; 4) further analysis reveals OFDI-induced greater green commitments generated real environmental and economic outcomes: firms invested more in environmental protection and reduced CO₂ emissions. In the meantime, they experienced lower excessive debt risk and higher innovative performance. The findings have positive implications for the promotion of firms’ pro-environmental behavior and sustainable development.