Internationalization and multinational corporations’ environmental performance: the role of corporate governance

Owing to critical climate change issues, the environmental responsibility of multinational corporations (MNCs) has recently attracted considerable attention from academia. However, few studies have examined how corporate governance (CG) affects MNCs’ environmental strategies during internationalization. Therefore, informed by the Institutional and stakeholder theories, this study focuses on Fortune Global 500 MNCs and theoretically discusses and empirically tests the relationship between internationalization and MNCs’ environmental performance and the moderating effects of CG on this relationship. The results indicate that there is a positive impact of internationalization on MNCs’ environmental performance and a positive moderating effect of board independence. Moreover, additional analyses show the joint moderating effects of CG on this relationship. Our results emphasize the importance of MNCs’ environmental responsibility that focuses on global stakeholders’ demands, how board independence strengthens board attention to stakeholders’ concerns, and why the joint effects of CG enhance environmental performance. Finally, suggestions for promoting MNCs’ environmental responsibility by strengthening CG regulations targeting policymakers and MNCs are provided.


Introduction
The increasing global challenges of climate change have attracted considerable attention.The consequences of climate change include global warming, rising sea levels, and shrinking Arctic and Antarctic ice surfaces (IPCC 2021).To address these issues, the United Nations Framework Convention on Climate Change (UNFCCC) issued the Kyoto Protocol in 1997 and established the Paris Agreement in 2015 to limit global warming to below 2 • C higher than preindustrial levels (UNFCCC 2015).However, owing to an increase in world's annual carbon dioxide emissions, global warming is likely to reach 2.7 • C by the end of the century (IPCC 2021).Under these circumstances, multinational corporations (MNCs) play a crucial role in promoting environmentally friendly goods, services, and green finance (UNCTAD 2021), key to the global reduction of carbon emissions (CDP 2020), and their environmental performance should play an important role in efforts to save our planet.
Previous studies have proposed arguments regarding the environmental performance of MNCs.Peng and Zhang (2022) argued that MNCs' environmental performance reflects their corporate environmental responsibility practices.These can be affected directly by government regulations (Jackson et al 2020, Christensen et al 2021), requirements of nongovernmental organizations (Berrone et al 2017), social norms (Guthrie et al 2004), and stakeholders' environmental concerns (Hussain et al 2018).Meanwhile, companies disclose information on corporate environmental practices as a communication channel between them and stakeholders (Fernandez-Feijoo et al 2014), which private rating providers also evaluate as environmental performance (Young-Ferris and Roberts 2023).Companies with poor environmental performance may face a potential legitimacy risk (Attig et al 2016) or penalty from the government (Zhang et al 2021).Higher environmental performance can facilitate the maintenance of corporate legitimacy (Marano and Kostova 2016), social recognition (Silberhorn and Warren 2007), risk management (Bebbington et al 2008), and corporate competitiveness (Eccles et al 2014).
Meanwhile, MNCs' environmental responsibility practices may be affected by institutional conflicts with increasing internationalization. Dunning (2006) argues that MNCs can strengthen their advantages and competitiveness in terms of technology, resources, market share, and other aspects through global foreign direct investment and internationalization.However, the institutional pressures exerted by MNCs are also enhanced during the internationalization process (Brammer et al 2009), and generate institutional conflicts for companies (Tan and Wang 2011).Tan and Wang (2011) argue that institutional conflicts arise because legitimacy standards (i.e.stakeholder demands) differ between countries, whereas corporate practices can only meet the standards of one country.Once a global operation involves multiple host countries, MNCs face greater legitimacy challenges (Campbell 2007, Attig et al 2016), which strengthens the complexity of institutional conflicts (Tan and Wang 2011).This requires MNCs to enhance their stakeholder engagement (Cano-Rubio et al 2021) with a better understanding of stakeholder demands (Brammer et al 2006, Attig et al 2016).With the wide consideration of stakeholders' environmental concerns from global operation networks, MNCs' environmental strategies have been promoted (Duque-Grisales et al 2020), and the surveillance of unethical behavior in host countries has also been enhanced (Jung et al 2018).Consequently, corporate environmental responsibility may improve as internationalization increases.
Moreover, the role of corporate governance (CG) in corporate environmental responsibility has attracted much academic attention.Zhang et al (2021) argue that the voluntary nature of corporate environmental responsibility causes related practices to rely on self-discipline, especially in CG.This is because these corporate practices are outcomes of the board of directors' decision making (Rao andTilt 2016, Peng et al 2021), which are directly prescribed by board composition (i.e., board independence, board size, and CEO duality) (Jizi et al 2014, Kaymak and Bektas 2017, Peng and Zhang 2022).Diverse board composition characteristics could affect information asymmetry issues (Chen andJaggi 2000, Cui et al 2020), management supervision (Jizi et al 2014), corporate transparency (Kaymak and Bektas 2017), and the board's attention to vulnerable stakeholders differently (Peng and Zhang 2022).This can directly lead to different corporate social responsibility (CSR) decisions and affect environmental practices (Rao and Tilt 2016).Empirical evidence also confirms that CG is related to CSR (Jizi et al 2014, Kaymak andBektas 2017), environmental performance (Hussain et al 2018, Peng andZhang 2022), and corporate water disclosure (Peng et al 2023b).
Finally, as previously mentioned, MNCs must understand the legitimacy standards of various host countries (Attig et al 2016) and meet the expectations of various stakeholder groups (Brammer et al 2006) to maintain global legitimacy.This means that, compared to companies that operate in a single country, the investigation of MNCs' environmental responsibility requires an appropriate theoretical perspective to explain the complex institutional pressure constraints and how CG responds to stakeholders' demands.Tan and Wang (2011) argue that institutional and stakeholder theories are suitable for explaining MNCs' social responsibility practices.Institutional theory explains the drivers and constraints of institutional pressures on MNCs' environmental responsibility (Kostova and Roth 2002, Campbell 2007, Matten and Moon 2008, Marano and Kostova 2016), revealing how different institutional factors from the multiple regions involved in MNCs' operations could affect their practices (Marano and Kostova 2016).Stakeholder theory reveals how CG can affect corporate environmental responsibilities through the influence of stakeholder demand (Fernandez-Feijoo et al 2014, Francoeur et al 2019).Therefore, existing studies have investigated voluntary corporate disclosure (Nyahas et al 2017), CSR reporting (Othman et al 2011, Peng et al 2023a), and corporate environmental performance (Zhou et al 2022) from the perspective of institutional theory.Meanwhile, stakeholder theory also widely used in the study of CSR (Kaymak andBektas 2017, Peng et al 2022), corporate environmental disclosure (Peng et al 2021), and environmental performance (Hussain et al 2018).
Considering the above, there is a potential link between MNCs' internationalization, CG, and corporate environmental responsibility.Clarifying this relationship contributes to providing suggestions for policymakers and MNCs to promote corporate environmental responsibility and address complex stakeholders' environmental concerns, especially in the current climate change crisis.Therefore, we focus on a sample of Fortune Global 500 MNCs (the sample period ranges from 2001 through 2020), and based on the perspective of institutional and stakeholder theories, to answer the following questions: (1) does internationalization impact MNCs' environmental performance (RQ1); and (2) how does CG (board independence, board size, and CEO duality) moderate this impact (RQ2) (see figure 1 for the research framework) The remainder of this paper is structured as follows: section 2 presents the methodology, while section 3 presents the empirical results, and section 4 presents the discussion, followed by a conclusion in section 5.

Data and samples
Our study focuses on MNCs from the Fortune Global 500 and the sample period ranges from 2001 to 2020.We followed previous environmental performance studies (Hussain et al 2018) to select the Fortune Global 500 listed MNCs as a sample source for this study.The selection process is as follows: (1) select MNCs from the 2020 Fortune Global 500 list, (2) exclude companies that are not available in Thomson Reuters's Asset4 database; and (3) exclude firm-year observations with missing data (e.g.data related to the dependent, independent, moderating, and control variables) from Asset4.Finally, a total of 278 firms from 30 countries with 2,772 firm-year observations were obtained as samples (see appendix table A1 for the sample distribution).
For data collection, we followed Duque-Grisales et al (2020) and selected the Thomson Reuters' Asset4 database as the data source.This is because this database is one of the largest ESG rating providers in the world (SustainAbility 2020) and offers systematic, firm-specific characteristic data for investors to integrate both ESG and firm level data into their investment decision making (Cheng et al 2014).Our data include MNCs' environmental performance and firm (board-and firm-specific characteristics) data, all of which are available from the Thomson Reuters' Asset4 database.

Variable description
The dependent variable in this study is MNCs' environmental performance (EN).Existing corporate environmental performance studies are mainly based on the environmental performance score evaluated by independent rating providers (e.g., Thomson Reuters) (Shaukat et al 2016, Young-Ferris andRoberts 2023).The evaluation materials used by the rating providers are based on companies' public disclosures (e.g.CSR or related reports) (Young-Ferris and Roberts 2023), which could reflect companies' participation in environmental responsibility (Hussain et al 2018).Therefore, we relied on the previous study by Shaukat et al (2016) to measure EN using the total environmental performance score from the Asset4 database.
The independent variable is MNCs' internationalization (FS).Following Aray et al (2021), we used the ratio of total foreign sales to total sales to measure FS.
The moderator variables include board independence (IND), board size (BSIZE), and the separation of the roles of the CEO and board chairperson (SEPARATION).Based on existing studies (Kaymak andBektas 2017, Peng andZhang 2022), we measure IND as the proportion of external directors on a board, BSIZE as the total number of directors on a board, and value of 1 for a CEO who is not the chairperson of the board, and 0 otherwise, for the measurement of SEPARATION.

Model specifications
We developed the following equation to test the impact of internationalization on environmental performance (RQ1): ( where  Luo and Tang (2022) to utilize the following equation: (2) In Equation ( 2), CG k refers to the kth corporate governance variable, namely any one of the IND, BSIZE, and SEPARATION variables.
In addition, we divide our sample into two subsamples using the median value (0.4544) of FS to examine whether the impact of internationalization on environmental performance varies across different levels of internationalization for all equations.

Descriptive statistics and correlation analysis
Table 1 presents the statistical measures and Pearson's correlation coefficients.The first to fourth columns present variable mnemonics, variable means, standard deviations, and variance inflation factors (VIFs), respectively.The remaining columns show the correlation coefficients.Panel A shows the results for the full sample, Panel B reports the results for the high internationalization sample, and Panel C shows the results for the low internationalization sample group.As the table shows, the variables are positively or negatively correlated in Panels A through C. Regarding multicollinearity, the correlation coefficients between the variables are all below 0.47, which meets the acceptable limits suggested by Kutner et al (2004).Moreover, we calculated the VIFs for all the variables and found that the mean VIFs were between 1.30-1.47,and the highest VIF was 2.81 in Panels A through C. Thus, our regression models were free of multicollinearity.

MNCs' internationalization and environmental performance
To mitigate the endogeneity issue, we borrowed an approach from previous studies (Francoeur et al 2019, Luo and Wu 2019, Nadeem et al 2020) that adopted two-stage least squares (2SLS) regressions to examine the endogenous relationship between internationalization and environmental performance (see table 2 for the results).Following Marchal and Nedoncelle (2019), the number of employees was included as an instrumental variable (IV).Two reasons led us to choose this instrumental variable.First, the number of employees is highly likely to have a positive relation with internationalization, that is, higher internationalization generally involves a higher number of employees.Secondly, the number of employees is difficult to directly affect the environmental performance.According to table 2, in the first stage, the coefficient of IV is positive and significant.In the second stage, our conclusions remain stable.
Table 3 reports the regression results for internationalization and environmental performance.Model 1 shows the results for the full sample, while Models 2 and 3 show the results for the high and low internationalization sub-samples, respectively.The results show that FS is positive in Models 1 and 3 at the 1% significance level, and insignificant for Model 2. These mean that, in the full and low internationalization sample groups, MNCs with higher internationalization tend to show better environmental performance, while the relationship is insignificant in the high sample group.
To mitigate potential bias in our results, we adopt the approach of Choi et al (2021) to retest our research models with intensive and non-intensive industry sample groups.These results remain the same as our empirical results (see table 4, panel (A)).Additional tests with a 1 year lag of our independent variable and a dummy variable (i.e.control for the degree of internationalization) are also provided in our study (see table 4, panels (B) and (C)), and the results remain the same.This further strengthens the reliability of this study.
Finally, we examined the impact of internationalization on environmental performance in four more specific subsamples (i.e., samples divided by FS at the quartile points of 25%, 50%, and 75%).Panel (D) of table 4 shows the results, which indicate that the   positive impact of internationalization on environmental performance exists before the point of 75% and becomes insignificant after that.

The moderating effect of CG
(3) Equation ( 3) examines the joint moderating effects of two corporate governance variables; CG k1 and CG k2 represent two variables from IND, BSIZE and SEPARATION: In Equation ( 4), we use the combined moderating effects of all three corporate governance variables.when board with larger size and high independence, the positive effect of internationalization in promoting environmental performance will be enhanced.Meanwhile, the positive effect of internationalization in promoting environmental performance is enhanced by a high independent board that CEO and the chairperson are separated.

Robustness tests
We the approach borrowed from Katmon et al (2019) to evaluate the robustness of our results using alternative measurements.Therefore, we follow Attig et al (2016), use the ratio of foreign assets to total assets (FA) to replace the independent variable (FS), and evaluate our regression models for robustness.These results were similar to those obtained empirically.Thus, our empirical analyses passed the robustness test (see appendix table A3 for details).

Discussion
This study revealed several interesting findings by answering RQ1 and RQ2: First, MNCs' internationalization effectively enhances their environmental performance (RQ1 Moreover, the positive role of internationalization in low-internationalization sample groups (β = 36.569,p > 0.1) is stronger than that in full sample groups (β = 19.114,p > 0.1).Following Cho et al (2015), we argue that when internationalization begins, MNCs face stakeholders' environmental demands from host countries, which speed up the MNCs' self-learning process in understanding stakeholders' needs in host countries for their legitimacy needs.This provides much room for improvement in promoting MNCs' participation in environmental responsibility.Therefore, MNCs' environmental performance is significantly enhanced at this stage.However, with the increase in internationalization, MNCs' ability to the consequent pressures to incorporate the diverse demands from stakeholders dispersed across different geographies will be strengthened (Sharfman et al 2004), and MNCs' understanding of stakeholders' needs and knowledge of environmental responsibility will become more comprehensive, which may reduce room for improvement.Consequently, the positive role of internationalization in promoting MNCs' environmental performance has slowed.
Second, the moderating effect of board independence is positive.These findings indirectly support those of previous studies (Hussain et al 2018, Peng andZhang 2022).Corroborating previous arguments (Kaymak andBektas 2017, Peng andZhang 2022), our results indicate that when MNCs are dueling the increased stakeholder environmental demands caused by internationalization, external directors' diverse and objective voices can enhance the board's attention to stakeholders.This could strengthen MNCs' environmental responsibility, which aligns with the detailed needs of stakeholders.Therefore, with increased internationalization, MNCs with high board independence tend to show better environmental performance than those with low-board independence.Meanwhile, this positive moderating effect in low-internationalization sample groups (β = 0.677, p > 0.1) is stronger than that in full (β = 0.175, p > 0.1) and high-sample groups (β = 0.105, p > 0.5).Considering our findings on RQ1 and the arguments of Kaymak and Bektas (2017) and Prado-Lorenzo and Garcia-Sanchez (2010), our  results reveal that the advantages of high board independence in strengthening board attention to stakeholders could effectively enhance MNCs' environmental responsibility at the beginning of their internationalization because the company has much room for improvement to respond to environmental demands of stakeholders from diverse host countries.Even this room will decrease with an increase in internationalization; however, because of external directors' high reputational responsibility, the positive role of board independence in promoting MNCs' environmental responsibility remains throughout the entire internationalization process.
Third, some unexpected results were obtained, including that the moderating role of board size was not significant.This may be related to the board's decision-making efficiency.On the one hand, there is a direct link between board size and decision conflicts (Lipton and Lorsch 1992).With increasing board size, disagreements in board debates could increase (Lipton and Lorsch 1992) and affect boards' unanimous decision making (Jensen 1993), which may reduce board commitment and accountability (Dey 2008).On the other hand, an increase in board size can enhance companies' CSR agendas (Jamali et al 2008) and promote communication with stakeholders (Kaymak and Bektas 2017).Thus, board size is likely to affect MNCs' environmental responsibilities differently.However, the moderating effect of CEO separation is insignificant.Previous studies argued that the environmental responsibility of companies is affected by managers' moral reasoning (Peng et al 2021).This means that a powerful CEO (i.e. a CEO who is also the chair of the board) could negate external directors' objective voices in the board debate (Hussain et al 2018) and weaken the board's monitoring (Rechner and Dalton 1991).However, if this CEO was concerned about the environment, he/she could use the influence in nominations to promote board independence to ensure the development of the MNC's environmental responsibility.Thus, this depends solely on the CEO's moral reasoning regarding environmental concerns, cultural values, or both.
Our analysis yields several valuable findings.Our results show that the combined effects of board independence and board size, and of board independence and CEO separation, are positive.The joint moderating effects of board size and CEO separation were insignificant.According to previous arguments and our findings on RQ2, a large board's better understanding of stakeholders (Kaymak and Bektas 2017) and less influence by the CEO (i.e., CEO separation) on the board's decision making (Peng and Zhang 2022) are insufficient to promote MNC's environmental responsibility during the internationalization process.Such promotion is only possible when there is sufficient board attention to environmental stakeholders (i.e., high board independence).
Moreover, the joint moderating effects of board independence, board size, and CEO separation are significantly positive, which supports arguments regarding the positive effect of external directors' objectivity on board debates (Kaymak and Bektas 2017), directors' expertise and experience (Frias-Aceituno et al 2013), and more sustainability development concerns through CEO separation (Hussain et al 2018).This result emphasizes the importance of external directors' objective voices in promoting MNCs' environmental responsibility during their internationalization process.

Conclusion
This study focuses on Forbes' listed MNCs, tests the impact of internationalization on MNCs' environmental performance, and examines the moderating effect of CG.Our results revealed the following.First, internationalization effectively enhances MNCs' environmental performance, especially in low-internationalization sample groups.Second, board independence has a positive moderating effect.Third, the joint effects of the CG were different.These results reveal that, with increasing internationalization, MNCs adjust their environmental responsibility practices in accordance with stakeholders' concerns in multiple host countries, which leads to an increase in environmental performance.Meanwhile, with global expansion, external directors could promote the board's concerns regarding stakeholders' environmental demands in MNCs' global networks, which will address the global legitimacy challenge and become key to further increasing corporate environmental performance.
This study makes both theoretical and practical contributions to the literature.Theoretically, RQ1 clarifies the relationship between internationalization and MNCs' environmental performance, which theoretically and empirically explains why and how internationalization enhances MNCs' environmental responsibility.In particular, our results indicate that the positive impact of internationalization in the initial stage is much stronger.This finding confirms the argument of Cho et al (2015) that MNCs engage in self-learning and strengthen their CSR knowledge during internationalization.In contrast to Duque-Grisales et al (2020), our study further investigates the impact of internationalization on MNCs' environmental performance at the beginning and after stages, which deepens our understanding of MNCs' environmental responsibility in their global expansion from an institutional theory perspective and enriches the literature in related fields.For RQ2, we indicated the importance of board independence in promoting the board's attention to stakeholders' environmental concerns.This positive role could further enhance MNCs' self-learning of host countries' stakeholder demands during internationalization, which could benefit their environmental responsibility promotion.This establishes a link between internationalization, CG, and MNCs' environmental performance and extends the application of institutional and stakeholder theories in MNCs' environmental responsibility studies.
Moreover, our additional analyses suggest that multiple board composition characteristics can enhance MNCs' environmental responsibility in their internationalization progress.This again emphasizes the importance of board independence and explains why, without enough attention to stakeholders (i.e. board independence), the roles of board size and CEO separation in promoting MNCs' environmental responsibilities are limited.
Practically, we suggest that policymakers realize the positive role of board independence and encourage MNCs to address their concerns about global stakeholders' environmental demands.This may help MNCs resolve institutional conflicts and maintain their global legitimacy.Meanwhile, current mandatory regulations mainly require companies to increase board independence (such as the security laws in China and the US) rather than board size and CEO separation.Therefore, policymakers should encourage companies to expand their board size and reduce the influence on environmental responsibility.This may help MNCs to better understand stakeholders' concerns in diverse host countries.We suggest that companies should increase their board independence, especially in the beginning stage of their internationalization.By wisely adopting external directors who can enhance board attention to stakeholders' demands, MNCs can strengthen their knowledge and understanding of host countries' environmental concerns.This can help MNCs maintain their global legitimacy.Moreover, MNCs must adjust their boards to an appropriate composition, which is also important for promoting environmental responsibility.
Finally, this study has several limitations.First, it only investigates MNCs in the Fortune Global 500, focusing less on emerging markets.MNCs in emerging markets lag considerably behind Fortune Global 500 companies in terms of size and internationalization.However, these MNCs still contribute to non-negligible environmental issues.Future studies should focus on MNCs in emerging markets and offer suggestions on how to improve their environmental responsibilities.Second, this study had a few unexpected results that deserve further investigation.Clarifying these may contribute to the research and practice of MNCs' environmental responsibility and performance and provide new inspirations to future research projects.

Table 1 .
Descriptive statistics and Pearson correlation.

Table 3 .
Regression results of internationalization and MNCs' environmental performance.
Table 5 presents the regression results for the mod- erating effects of CG.Models 1-3 show the results of the moderating effect of board independence for the full, high, and low samples, respectively.Models 4-6 show the results of the moderating effect of board size, while Models 7-9 show the results of the moderating effect of CEO separation.The results show that the results of FS × IND are positive in Models 1-3 and those of FS × BSIZE and FS × SEPARATION are insignificant in Models 4-9.These results explain that external directors' objective voices in board debates could strengthen boards' environmental responsibility.However, the effects of board size and CEO separation are limited.3.3.Additional analysesA joint moderating effect of CG may exist between internationalization and MNCs' environmental performance.According toRao and Tilt (2016), CSR decision making is a board's collective process related to various board diversity characteristics.This implies that a joint moderating effect of CG (board independence, board size, and CEO separation) is likely to exist.Thus, we perform several additional tests to determine the impact of the interaction terms FS × IND × BSIZE, FS × IND × SEPARATION, FS × BSIZE × SEPARATION, and FS × IND × BSIZE × SEPARATION on EN using the following equations:

Table 4 .
Additional tests results for internationalization and MNCs' environmental performance.

Table 6 .
Regression results of additional analyses.

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