Can National Innovation Substitute The Role of Environmental Regulation to Improve Corporate Environmental Performance?

Environmental regulatory uncertainty has attracted extraordinary attention among scholars, managers, policy-makers and other members of society. Despite this increasing attention, the impact of environmental regulatory uncertainty on the environmental approaches of firms is difficult to estimate in the business context. Considering that environmental regulations are not the only mechanism enabling firms to develop proactive environmental management practices, we show that the national institutional profile delineates a firm’s environmental progress. Specifically, we argue that the national level of innovation is an essential institutional condition that can encourage firms to develop advanced environmental approaches and even overcoming the effect of environmental regulatory uncertainty on corporate environmental performance. Using a sample of 1,912 firms from 19 countries, we developed different scenarios that combine the effects of environmental regulatory uncertainty and the national level of innovation. Knowledge of these different situations illustrates how managers cope with environmental regulatory uncertainty.