1. Introduction
In the process of economic transformation, the vitality of China’s market economy continues to be unleashed, which has led to rapid economic development, while major issues affecting people’s livelihoods such as environmental pollution and decline in air quality have also emerged. According to the latest “Environmental Performance Index: 2017 Report” released by Yale University, China ranks 60th out of 181 countries in the Environmental Performance Index, and although it is an improvement from 109th place in 2016, environmental pollution is still a serious problem in China (Data from:
http://epi.yale.edu/sites/default/files/2017EPI_Full_Report_opt.pdf, accessed on 6 June 2021 and
http://epi.yale.edu/sites/default/files/2016EPI_Full_Report_opt.pdf, accessed on 13 March 2021). The 19th CPC Central Committee’s fifth Plenary Session pointed out that we must adhere to the concept that lucid waters and lush mountains are invaluable assets, as well as the principle of respecting nature, conforming to nature, and protecting nature. It is necessary to investigate what factors can promote the environmental protection in China (Dong et al., 2012; Yang et al., 2019) [
1,
2]. As the main entity of the market, enterprises’ industrial activities are the primary factor that damages the environment (Hanna, 2010; Manderson and Kneller, 2012; An et al., 2021) [
3,
4,
5] (Sulfur dioxide emissions in 2017 were 8,754,000 tons, of which industrial emissions of sulfur dioxide from enterprises accounted for 84%). Therefore, the environmental protection of enterprises also determines whether the green development policy set by the central government can effectively improve environmental quality (Madsen, 2009) [
6]. Among all enterprises, overseas investment enterprise is a relatively special type, which faces dual supervision and management by the host country and China, has more access to advanced international management concepts, and needs to obtain support and resource allocation from the host country through their own actions to achieve their own interests. Therefore, overseas investment enterprises have the potential to enhance environmental protection through the three aspects above (Cole et al., 2006; Zhang et al., 2019; Wang et al., 2021) [
7,
8,
9].
Firstly, under the guidance of China’s “One Belt and Road” Initiatives, the frequency of overseas investments by Chinese enterprises has gradually increased in recent years (There were 810 overseas investment events between 2010 and 2019, and the number of overseas investment events was higher than 100 each year after 2016, which implies that Chinese companies are investing more and more overseas). In order to eliminate the liability of foreignness in the host country and obtain the support of local government and the recognition of surrounding residents, so as to obtain more political and productive resources, overseas investment enterprises have an incentive to produce and operate in an environmentally friendly way to reduce the environmental damage caused by their actions (Spatareanu, 2007; Marano et al., 2016) [
10,
11]. Secondly, the production behavior of overseas investment enterprises needs to comply with the requirements of the host country, China, and even the international system. For legitimacy motives, overseas investment enterprises usually raise their own environmental protection and reduce the negative externalities of their production behavior (Cheung, 2015) [
12]. In addition, overseas investment firms can take advantage of the reverse spillover effect (Marano and Kostova, 2016) [
13] to learn the advanced management concepts and production methods from the host country, which can help to improve the environmental protection from the perspective of management’s moral motivation. Finally, overseas investment enterprises not only face the constraints of relevant environmental protection laws and regulations in China but also bear the supervision of their environmental behavior by the host country, i.e., overseas investment enterprises are under the surveillance pressure of the dual environmental protection system from the host country and the home country (Wang et al., 2013; Gorodnichenko et al., 2014) [
14,
15]. Furthermore, oversea investment provides the enterprises more access to use the environmentally materials, which can do some good to improve the environmental protection (Pomares et al., 2018; Bautista et al., 2019) [
16,
17]. From this perspective, overseas investment has improved the environmental protection of enterprises (Zomorrodi and Zhou, 2017) [
18].
Figure 1 depicts the trends in environmental protection expenditure of Chinese overseas investment and non-overseas investment firms from 2010 to 2019 (Since the 1972 United Nations Conference on the Human Environment in Stockholm, countries around the world have gradually reached a consensus to abandon unsustainable development models and achieve sustainable development, which has made the protection of the environment a global topic) (The environmental expenditures of the corresponding types of enterprises are indicated by calculating the average value of environmental expenditures of overseas-invested enterprises and non-overseas-invested enterprises for each year). Firstly, between 2010 and 2018, the environmental protection expenditure of two types of companies only declined in 2012 and 2018, which showed an upward trend as a whole, and a sharp increase in 2019. Secondly, between the two types of enterprises, the environmental protection expenditure of overseas investment enterprises is higher than that of non-overseas investment enterprises every year, which, to some extent, verifies the above inference of this paper.
The economic and social impacts of overseas investments by Chinese enterprises are multifaceted. In recent years, academics have gradually conducted in-depth studies on the economic and social impacts generated by overseas investments, for example, some studies have found that Chinese enterprises’ overseas investments regulate corporate behavior and improve corporate social responsibility, technological innovation, and additive rates to a certain extent (Araya, 2012; Aung, 2021) [
19,
20]. However, as of yet, no literature has been found to analyze and explore the impact of overseas investment on firms’ environmental protection. The increasing number of Chinese overseas investment enterprises provides an opportunity to study this issue. Analyzing and exploring the impact of overseas investment on corporate environmental protection from the perspective of institutional distance can not only further expand and enrich relevant studies on overseas investment and corporate behavior theoretically but also provide a new perspective and theoretical basis for relevant government departments to formulate relevant policies to enhance the green and sustainable development of enterprises.
Based on the above understanding, this paper uses the relevant data of China’s listed companies from 2010 to 2018, the two-way panel fixed effects model and the PSM-DID measurement method to empirically examine the impact of overseas investment on corporate environmental protection and its dynamics. The findings suggest that overseas investment improves corporate environmental protection and the impact of overseas investment on corporate environmental protection is dynamic in nature, with corporate environmental protection improving after three years following overseas investment.
Compared with the existing literature, the main contributions of this paper are mainly reflected in the following aspects: it expands the literature on how overseas investment affects firms, which contributes to a more comprehensive and deeper understanding of the impact of overseas investment on the parent company. Unlike many studies that take parent company’s corporate performance, corporate innovation, and production capacity as their entry points, this study focuses on corporate environmental protection, which is at the core of corporate green sustainability, and confirms the positive impact of overseas investment on corporate environmental protection.
The remainder of the paper is organized as follows: The second part is the theoretical mechanism that explains how overseas investment influences corporate environmental protection. The third part is the research design, which explains the variables, data sources, and model settings. The fourth part presents the empirical results, which show the impact of overseas investment on the environmental protection of enterprises. The fifth part is the conclusion of the study and policy recommendations.