Multinational Business ReviewIs there a relationship between Environmental Performance and Outwards FDI? A study of Chinese MNEs

Purpose – In this paper, we aim to examine the question: “How do firm-level, home country and host
country Environmental Performance (EP) affect the Outwards Foreign Direct Investment (OFDI) of
Chinese multinational enterprises (MNEs)?”
Design/methodology/approach – We examine the relationships between EP and OFDI propensity and
between EP and OFDI intensity using a sample of 359 Chinese firms in industries with a significant
environmental footprint between 2009 and 2019 (2,002 firm-year observations) and a Heckman two-stage
model.
Findings – We show that the propensity of OFDI by Chinese MNEs is significantly and positively related
to the firm’s prior EP and the country-level EP of China. However, the amount of FDI invested is
significantly and positively related to the firm’s prior EP and negatively related to the EP of the host country.
Research implications/limitations – Our findings suggest that FDI in a country by an MNE is determined
by a combination of firm-level EP, home country EP, and host country EP. We find that the decision to
undertake FDI (propensity) and the decision about how much to invest (intensity) are determined by
different factors. The propensity for FDI is determined by the home country EP and firm-level EP. However,
the intensity of FDI is determined by a combination of the host country EP and firm-level EP. A limitation
is that our study only examines MNEs in China, so the findings may not apply to other countries.
Originality – Our paper shows that MNEs’ EP is positively related to the propensity and intensity of their
OFDI decisions. However, our paper shows that the home country and host country EP may also play an
important role in determining the propensity or intensity of OFDI.