Internationalization and Carbon Emissions: The Moderating Roles of Internal and External Governance Mechanisms

ABSTRACT Growing ecological concerns and climate change issues put firms with international exposure under pressure and in the spotlight of stakeholders. Drawing on the trade openness theory, legitimacy theory, and institutional theory, we focus on whether internationalization is associated with carbon emissions and whether internal (i.e., environmental management committee) and external governance mechanisms (i.e., United Nations Global Compact) moderate the association between internationalization and carbon emissions. We draw an international sample of 16,372 observations and execute country‐industry‐year fixed effect regression. First, we find that a firm's level of carbon emissions is significantly affected by the degree of internationalization. However, further investigation revealed that this relationship holds for the non‐US–UK sample but not for the US–UK sample. Second, internal governance negatively moderates a firm's internationalization extent and carbon emissions level, whereas external governance has no significant moderating effect. However, this insignificant association related to external governance becomes significantly negative when we exclude the US and the UK from the sample. Further periodical analysis underscored the differing roles of two governance mechanisms in earlier versus recent periods.