Emerging Market Partners and Reputational Risk in the Petroleum Industry

• In Event: Flows of Aid, Trade, and Finance

Abstract

In recent decades, petroleum companies from emerging markets have increasingly become involved in production of oil and gas internationally. This means that many multinational corporations from industrialized economies are to a greater extent collaborating with companies from countries in which regulatory standards and/or enforcement are less strict. This paper studies how i) reputational risk and ii) conduct of petroleum companies change as their collaboration with companies from corrupt countries increases. Through panel data analysis which includes company-host country pair and year fixed effects, we find that increased collaboration with companies from corrupt countries is associated with an increase in negative attention related to local pollution. Additional analyses suggest that this increase in reputational risk does not seem to reflect worse environmental behaviour. While increased collaboration with companies from corrupt counties is associated with an increase in gas flaring and CO2 emissions, this relation reflects a selection effect whereby companies with worse past environmental performance are more likely to increase collaboration with companies from corrupt countries. The results hence suggest that collaboration with companies from countries with weak governance may draw attention to, rather than cause, unsustainable corporate conduct.

Authors

• Ivar Kolstad, Norwegian School of Economics

• Arne Wiig, Chr Michelsen Institute