Does Foreign Institutional Capital Promote Green Growth for Emerging Market Firms?
Sophia Chiyoung Cheong1, Jaewon Choi2, Sangeun Ha3, Ji Yeol Jimmy Oh4
1ESSCA School of Management; 2Seoul National University; 3Copenhagen Business School; 4Sungkyunkwan University
We examine whether foreign institutional capital promotes green growth in emerging-market firms, using firm-level and China A-shares’ market-level inclusions in the MSCI Index as shocks to foreign capital. While foreign capital boosts output in emerging-market firms, emissions rise disproportionately, leading to substantial increases in emissions intensity. In contrast, emissions intensities of developed-market firms tend not to increase with foreign capital. These increases in emissions intensity are concentrated in emerging markets with weaker environmental regulations and firms receiving more capital from high-sustainability-score investors. Overall, results suggest that environmental considerations are assigned lower priority when emerging-market firms utilize foreign capital for growth.