Green Innovation and the Value of Multinationality

Abstract

When do multinational corporations (MNCs) derive the most from internalizing the transfer of proprietary technological know how? We revisit this question, which lies at the core of theories on multinationality and performance, from the perspective of corporate strategy involving the mix of green versus non-green innovation effort and a foreign operations focus on countries with high-versus-low environmental standards. We find that high exposure to foreign markets with more stringent environmental regulations stimulates MNCs’ green patent applications. We further show that MNCs’ environmental competitive advantage obtained through green innovation activities, coupled with exposure to foreign countries with high environmental standards, increases firm value in the long run. However, this long-run advantage produces economic rents only when foreign countries have a common-law legal system, effective government, and high growth. Finally, the pursuit of green (or even non-green) innovation while competing in polluting industries is positively associated with market value. Overall, our study highlights that green technology development is a main source of value creation for multinationals.