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Shoham, Amir; Frynas, Jedrzej George; Arslan, Ahmad; Bazel-Shoham, Ofra; Lee, Sang Mook; Khan, Zaheer and Tarba, Shlomo
(2024).
DOI: https://doi.org/10.1057/s41267-024-00728-0
Abstract
Language affects almost every aspect of management in multinational enterprises (MNEs) but little is known about the impact of language on environmental performance. Our study investigates how language diversity affects the environmental performance of MNEs worldwide. We show that the grammatical structure of a language – specifically the first pronoun drop – is an important factor explaining the environmental performance of firms. Our analysis of 4,454 company-year observations suggests that MNEs operating in societies that permit the first pronoun drop tend to have better environmental performance. Furthermore, we explore the impact of linguistic structure on the relationship between environmental performance and Corporate Political Activity (CPA). We find that using the first pronoun drop of the local language moderates the influence of CPA on firms’ environmental performance. Our study concludes that international managers must pay greater attention to the neglected role of language in implementing environmental initiatives.
Plain Language Summary
In the complex world of international business, language plays a crucial role in shaping how multinational enterprises (MNEs) manage their responsibilities towards society and the environment. While previous studies have looked at cultural influences on corporate social responsibility (CSR), the impact of language – specifically, the structure of language – has been largely overlooked. This study bridges that gap by examining how linguistic features, such as the ability to drop the first pronoun (the subject of a sentence, like "I" in English), affect MNEs' environmental performance and their corporate political activities (CPAs), which include lobbying and political contributions. This study analyzed data from the Refinitiv-ESG database, which is widely recognized in research. The sample included 4454 company-year observations from 951 MNEs across 52 industries in 44 countries, spanning from 2002 to 2019. The researchers used multivariate OLS (ordinary least squares) regressions to test their hypotheses, ensuring that all explanatory and control variables were lagged by 1 year to address potential causality issues. The key finding is that MNEs from countries where the dominant language allows for the first pronoun to be dropped tend to have better environmental performance. Additionally, MNEs that invest more in CPAs generally show better environmental performance. However, the positive impact of CPAs on environmental performance is less pronounced for MNEs from countries where the first pronoun can be dropped, suggesting that language structure may moderate the relationship between CPAs and environmental outcomes. The results of this study suggest that language structure, particularly the use of the first pronoun drop, is an important factor behind the better environmental performance of MNEs in such societies. It also highlights the interconnectedness of CSR and CPA, supporting the idea that these strategies are complementary. The findings have significant implications for how MNEs approach environmental initiatives and suggest that managers should consider the role of language when implementing such strategies. The potential impact of this research is substantial, as it encourages MNEs to pay closer attention to the linguistic context of their operations. It also opens up new avenues for future research, such as exploring the impact of language on other types of nonmarket strategy performance or examining how language diversity within corporate boards affects environmental engagement. Overall, this study advances our understanding of the intricate relationship between language, corporate strategy, and environmental responsibility. This text was initially drafted using artificial intelligence, then reviewed by the author(s) to ensure accuracy.
CORE (COnnecting REpositories)
CORE (COnnecting REpositories)
