Essays on international non-market strategy and the political economy of environmental regulation

This dissertation examines the interaction of companies with their non-market environment in an international context. It specifically focuses on the political economy of newly introduced climate change regulations and how these policies affect firm strategy. The empirical setting of my work is the European Union Emissions Trading Scheme (EU ETS), the largest active cap-and-trade program in the world. Introduced in 2005, the EU ETS has established a substantial market for emissions allowances by requiring companies across the EU to internalize the costs of emitting greenhouse gases. The three chapters of my dissertation are empirical studies that use novel data from the EU ETS. In the first chapter, I show through the analysis of a panel dataset of companies in the Iron and Steel sector in the EU that multinational firms are more likely to exploit arbitrage opportunities in the EU ETS. My results also indicate that multinational firms can capture more value from the EU ETS than their domestic peers. In the second chapter, we examine the sources of non-market performance differences among firms in the EU. Our findings suggest that firm-affiliation is a strong determinant of the variation in non-market performance across industrial plants in the EU ETS. We also show that industry effects are important for absolute non-market performance measures and that country effects are not as strong as firm effects. In my third dissertation chapter, I examine the political economy of the distribution of emissions allowances within the EU ETS. In my analysis of a panel dataset of industrial sectors in the EU, I find that country-specific institutional and political characteristics affect the allocation of emissions allowances to industrial sectors in the EU ETS. My dissertation is embedded within prior literature in international economics, strategy and political economy.