Does going abroad lead to going green? Firm outward foreign direct investment and domestic environmental performance

Abstract

AbstractThis study examines whether and how outward foreign direct investment (OFDI) affects firms' domestic environmental performance. We use both the reverse knowledge transfer and resource crowding perspectives to predict the association. Using a sample of Chinese firms, we find that firms' environmental performance improves after the initiation of OFDI, which is consistent with the reverse knowledge transfer perspective. Furthermore, we find that when the host countries of OFDI are developed countries, have stricter environmental regulations, and are characterized by higher values for the long‐term orientation and masculinity dimensions of national culture, firms enjoy a further improvement in environmental performance. Our channel tests show that firms' domestic green patent applications and their investment in research and development increase after the initiation of OFDI.