Determinants of target location selection for acquirers in the manufacturing sector: Pollution intensity, policy enforcement, and civic environmentalism

Abstract

This study tests the pollution haven hypothesis to identify the determinants of target location selection in cross-border mergers and acquisitions (CBAs). Under the pollution haven hypothesis, it argues that the high pollution intensity of the acquirer’s industry in the manufacturing sector makes acquirers more likely to select target countries with relatively lax environmental policies than those in the home country to gain location-specific advantages. This effect is more substantial with increased home-country government-policy enforcement but weaker with increased host-country civic environmentalism. Using 3,087 completed CBAs (2001–2013) from 49 acquirer countries, we find evidence that supports the pollution haven hypothesis.