Positive mechanism of foreign direct investment enterprises on China's environment: Analysis of host country regulation and parent company management

Abstract

Based on the analysis of foreign direct enterprises in China, our study developed a novel conceptual Structural Equation Model for assessing the role of environmental innovation behavior in mediating environmental regulations and performance of Chinese foreign direct investment enterprises, from the perspective of host country government and parent company. This paper performed a thorough investigation of selected foreign direct investment enterprises in China. Through the structural equation model analysis and the bootstrap mediating method, we established that innovation behavior plays a fully mediating role. Although environmental regulation and cross-border environment management have no direct effect on high-level environmental performance, environmental regulation stimulates environmental innovation behavior either directly or indirectly through the parent company. Further, our study revealed that the effect of parent company cross-border environment management is more obvious than that of local environmental regulation on environmental performance. Nevertheless, the combined effect of the two mediating variables is the highest; though, they play varied roles across the different independent variables. This study, additionally, offers crucial policy recommendations for managers, governments and key stakeholders of China towards augmenting FDI whilst embracing environmental protectionism mechanisms.