Do environmental regulations drive MNEs’ equity ownership? Considering the impact of exogenous shocks on MNEs’ cross-border acquisitions

Extant studies of how firms respond to environmental regulations in devising foreign expansion strategies often fail to consider how multinational enterprises’ (MNEs) equity ownership decision-making might depend on the host country's environmental regulations. To advance a conceptual framework based on institutional theory, the current study tests whether the stringency of host country environmental regulations influences MNEs' decisions about equity ownership. Novel, recent data pertaining to 3,679 cross-border acquisition (CBA) deals by 1,135 MNEs from 30 countries also provide insights into whether environmental capabilities and environmental regulation distance affect the relationships of MNEs' equity ownership decision-making and the stringency of host countries' environmental regulations. Because exogenous shocks, such as COVID-19, create notable disruptions, this study also considers how exogenous shocks have influenced MNEs' strategic decisions in international markets. The results reveal that MNEs choose higher equity ownership in host countries with more stringent environmental regulations; environmental capabilities and environmental regulation distance positively moderate the relationship between the degree of environmental regulation stringency and the level of equity ownership. Finally, the links between environment regulation stringency and equity ownership grow stronger when MNEs experience an exogenous shock such as COVID-19.