Standardization and the impacts of voluntary program participation: Evidence from environmental auditing

Abstract

We explore how limits to our insight about the underlying decision-making structure of firms may affect the conclusions we draw about the likely impacts of participation in voluntary environmental programs. We develop a theoretical model to examine the conditions under which a multi-facility firm chooses to employ a standardized adoption policy for a voluntary program. We test this model empirically using a firm-level dataset on the adoption of a voluntary environmental auditing program and find that, consistent with the theoretical model, a standardized auditing outcome is less likely among firms with more heterogeneous portfolios of facilities. We also examine the effect of environmental auditing on facility compliance using both firm-level and facility-level controls. We find that the estimated effect depends on whether or not measures that proxy for firm incentives for standardization are included in the analysis. These findings suggest caution in drawing conclusions on the effectiveness of voluntary programs in improving compliance based on analyses that assume standardization on the part of the firm.