Business Strategy and the Environment

Bus. Strat. Env. 18, 122–136 (2009)

Published online in Wiley InterScience
(www.interscience.wiley.com) DOI: 10.1002/bse.641

National Culture, Regulation and Country

Interaction Effects on the Association of
Environmental Management Systems with
Environmentally Beneficial Innovation
Marcus Wagner*
Schöller Chair in Technology and Innovation Management, Technische Universität München,
Germany and Bureau d’Economie Théorique et Appliquée, Université Louis Pasteur,
Strasbourg, France

ABSTRACT
I address in a comparative perspective the question of whether environmental management
systems and particular managerial activities to reduce negative environmental impacts have
a positive influence on the probability of firms carrying out environmental innovations.
Based on binary and multinomial discrete choice models, I study the relationship of a
number of determinants to the occurrence of environmental innovations based on data
from a survey carried out in 2001 in nine European states. I find evidence that environmen-
tal management systems are associated with process innovations, but that this is moder-
ated by the interaction of environmental management system implementation with country
location. I do not find that environmental management systems are associated with product
innovations or that a moderating effect of country location exists. County-specific national
cultures and regulatory regimes moderate the association of environmental management
system implementation with environmental product and process innovations, respectively.
Copyright © 2009 John Wiley & Sons, Ltd and ERP Environment.

Received 25 April 2007; revised 15 January 2008; accepted 11 April 2008

Keywords: environmental; innovation; management systems; regulation; certification

Introduction and Extant Literature

E
NVIRONMENTAL MANAGEMENT SYSTEMS (EMSS) HAVE BEEN AT THE FOREFRONT OF THE ENVIRONMENTAL POLICY
agenda for some time now. However, the initial enthusiasm, e.g. of national environmental agencies,
seems to have vanished, at least partly in light of the reality check that quite regularly catches up with new
management approaches and concepts in general (Aragon-Correa and Rubio, 2007). Whilst EMSs are still
seen as a welcome addition to the environmental policy toolbox, they are no longer perceived to be a magic bullet
that solves all issues surrounding corporate environmental management (Hertin et al., 2008). In line with this
more differentiated view, I pursue an analysis of EMS effects on innovation that accounts for the possibility that

* Correspondence to: Marcus Wagner, Schöller Chair in Technology and Innovation Management, Technische Universität München, Arcisstr. 21,
80333 München, Germany. E-mail: wagner@wi.tum.de

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Interaction Effects for EMS-Innovation Links 123

such effects vary across countries, national cultures and regulatory regimes, which is so far a gap in the literature.
Hence, in this paper I answer the questions of whether and how the association between EMSs and the
probability of firms to carry out environmentally beneficial product and process innovations is moderated by dif-
ferences in country location, environmental regulation and national cultures. Such an analysis matters, because
environmentally beneficial innovations are considered a significant opportunity resulting from environmental
management (see, e.g., Dyllick and Hockerts, 2002; Porter and van der Linde, 1995). Next to identifying environ-
mentally beneficial innovations as a subset of all innovations in an economy, a distinction can also be made in
accordance with the Oslo manual and earlier work (OECD and Eurostat, 1997; Rehfeld et al., 2007; Ziegler and
Rennings, 2004) into product innovations (i.e. environmentally sound product design) and process innovations
(process-integrated environmental technologies). Several empirical studies have analysed links between environ-
mental management and innovation at the firm level (Hemmelskamp, 1999; Rennings et al., 2003b; Rennings et
al., 2005; Ziegler and Rennings, 2004) and for aggregated industries (Brunnermeier and Cohen, 2003; Jaffe and
Palmer, 1997). Yet, country-level (or regulatory) influences have so far often been excluded from empirical analy-
ses, partly due to the dominance of US-based studies (focusing on only one country).
In order to specifically address differences in geographical location, national culture or approaches to environ-
mental regulation, I use interaction variables as a novelty of the empirical analysis. To overcome other limitations
of earlier studies, the empirical analysis is based on a questionnaire specifically targeted towards environmental
management and innovation aspects, which collected data at the firm level and includes firms with environmental
management systems as well as those without such a system. A difference of this research from earlier studies
(which does not however limit the analysis) is that it uses environmental process and product innovations already
carried out by the firm in the last three years as the dependent variable.1 In the next section I develop the
theoretical underpinnings of the research and formulate research questions.

Theory Development and Research Questions

There has been considerable research into the effects of EMSs in recent years (e.g. Rennings et al., 2003a, 2003b,
2005). The general conclusions from these studies is that ultimate effects of an EMS, e.g. on firm profitability or
aggregate emissions to air or water or the quantity of waste generated, are not so large as to imply emission or
waste levels significantly different from those of firms without an EMS. On the other hand, some authors do find
evidence of positive EMS influences on less tangible factors such as a firm’s innovatory activity (e.g. Hamschmidt
and Dyllick, 2001; Rennings et al., 2005). Product- or market-related factors may additionally have a positive influ-
ence on the propensity of firms to carry out an environmental process or product innovations, independent of the
existence of an EMS. Factors considered in the literature (e.g. Brío and Junquera, 2003; Karl and Orwat, 1999;
Pujari, 2006) are whether firms inform consumers about environmental effects of products and production
processes, whether market research on the potential of ‘green’ products is carried out or whether firms use eco-
labelling. Next to the aforementioned factors, links between EMSs and environmentally beneficial innovations vary
across countries (Horbach et al., 2003; Rennings et al., 2003a) for a variety of reasons that in aggregate can cap-
tured by a country location variable. Accounting in this way for differing EMS effects by country contributes to
developing a theoretical framework for the evaluation of EMSs in the larger environmental policy context. Because
of this, I raise the following research question regarding the association of the level of EMS implementation with
firms’ propensity to carry out environmental innovations.

Research Question 1. Is the effect of EMS implementation on firms’ propensity to carry out environmental
process or product innovations moderated by country location?2
1
Ziegler and Rennings (2004) argue that not using lagged independent variables could lead to problems of endogeneity, which could be reduced
or avoided by using information about environmentally beneficial innovations planned in the future or by using lagged dependent variables.
This advantage of using future-oriented statements is counter-balanced by the greater uncertainty with regard to firms actually innovating in
the way they predict and by potentially higher response bias due to social desirability. These problems are avoided in my approach. In addition
to this argument for my dependent variable, Rehfeld et al. (2007) find a very high correlation of the environmental innovations that have been
carried out by firms and those that are planned to be pursued in the future in the case of both product and process innovations.
2
Given that the dependent variables both refer to technical and not organizational innovation, some of the independent variables being of the
latter type is not an issue for the analysis.

Copyright © 2009 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 122–136 (2009)
DOI: 10.1002/bse
124 M. Wagner

Two country-specific factors in particular seem to matter for EMS implementation outcomes. First, national cul-
tures (Hofstede, 2001) differ and it has been shown that this relates to the utilization of EMSs. For example, in
terms of national cultures Steger et al. (2002) argue that Germany’s national culture (characterized in terms of
Hofstede’s (2001) dimensions of high masculinity, low power distance, low to middle individualism and low
uncertainty avoidance)3 supports EMS–innovation links, whereas France’s national culture (characterized by low
masculinity, very high power distance, high individualism and high uncertainty avoidance) does not. Second, Porter
and van der Linde (1995) as well as Rugman and Verbeke (1998) suggest that innovation effects vary across coun-
tries due to differences in environmental regulation. More specifically, Wätzold et al. (2001) posit a correlation
between regulatory relief and performance implications of EMSs. They argue, for example, that in France (and to
a lesser degree the UK) EMSs are considered not at all a regulatory, but instead a pure communication instrument,
whereas in the Netherlands (and to a lesser degree Germany) regulatory relief is granted for performance improve-
ments including environmental innovations. Furthermore, some of the countries in this analysis have a strong
legal stance in their environmental regulation, whereas others lean more towards flexible regulation or voluntary
or negotiated agreements (WEF et al., 2000, 2001; Esty and Porter, 2001; Levy and Prakash, 2003). In order to
address this empirically, my analysis employs not only interaction terms between EMS implementation and
country location, but also variables for the interaction of EMS implementation with specific regulatory and cultural
variables to address the following research question, answers to which further contribute to a differentiated theory
on EMSs.

Research Question 2. Can any moderation effect for EMS implementation on firms’ propensity to carry out
environmental process or product innovations be traced back more specifically to differences in national
culture or regulatory frameworks?

In the following section, I introduce the data set and the econometric approach to the analysis.

Research Method and Analysis

Data Set
The empirical analysis is based on data collected during a questionnaire-based survey carried out in 2001 in
Belgium, France, Germany, Hungary, the Netherlands, Norway, Sweden, Switzerland and the United Kingdom.
The questionnaire asked firms for a self-assessment about environmentally beneficial innovation, their main en-
vironmental management activities and general information about the firm and its structure. The development of
the questionnaire and the survey were a joint effort of researchers from nine European universities and business
schools (who all provided separate funding for the survey in their country) and started with a joint workshop in
late 2000. Prior to this, the large majority of the questions of the questionnaire had already been used in two
earlier EBEB surveys in 1996 and 1998. Nevertheless, the final version of the questionnaire used in the 2001
survey was translated anew from English into the respective national languages as necessary and then pre-tested
as a whole in each country. For example, the translation of the German version of the questionnaire was tested
with four firms to ensure that the questionnaire could be understood easily by firms, that the time for completion
was acceptable and that there were no problems with any individual questions. The pretests, which were carried
out separately in all countries, were then aggregated by a coordinator and minor changes were made following
this.
The sample for the survey was drawn randomly from the total population of firms in the manufacturing indus-
tries of the eight countries surveyed. The survey questionnaire was addressed to the general or environmental
manager of a company and it was asked that it be forwarded as necessary to the person most knowledgeable to
answer it. In some cases, the questionnaire was therefore completed by quality managers, and especially in small
firms often the general manager or managing directors themselves completed the questionnaire.
3
Individualism is defined as the degree of rigidity in the relations of individuals within a society; power distance refers to the inequality of the
distribution of power. Masculinity and uncertainty avoidance refer to the distribution of roles between genders and a society’s tolerance for
ambiguity and uncertainty, respectively (Hofstede, 2001).

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DOI: 10.1002/bse
Interaction Effects for EMS-Innovation Links 125

Nearly 2100 firms in manufacturing sectors responded to the survey across all countries, resulting in an average
response rate of 26.1% in the 2001 survey, which is similar to the average response rate of the earlier EBEB survey
rounds in 1998 (17.6%) and 1996 (33.9%).4 One likely bias is that smaller firms are under-represented in the
replies for several countries, especially Norway, Switzerland, the UK and Germany. The implication of this is that
results may not be representative for small firms.
Next to this bias, self-assessment and self-exclusion of responders may be a cause for distortions in the data set,
in particular as concerns common method bias. Common method bias results from variance in the date being
more attributable to a measurement method than to the constructs measured (Podsakoff et al., 2003). Notably, the
extent of common method bias differs between disciplines and is below average in the fields of marketing and
business (Cote and Buckley, 1987). Also, self-assessment or soliciting data on independent or dependent variables
does not per se imply the existence of common method bias, since its strength can differ amongst subgroups of
respondents (e.g. respondents from different countries) and since method-related variance can deflate or inflate
the relationships observed (Cote and Buckley, 1987; Podsakoff et al., 2003). For the EBEB survey data used here,
a number of steps were taken (both procedurally and statistically) to ensure that common method bias was
minimized.
Procedurally, different response formats were used, the anonymity of respondents was ensured, question order
was counter-balanced and scale items were improved, especially throughout the pre-test phase of the survey. All
these steps were aimed at reducing socially desirable responses and item ambiguity. For the sake of preserving
the anonymity of respondents, it was not in generally possibly to pursue two other procedural remedies, namely
obtaining assessments from different respondents and separating measurements. However, the instructions pro-
vided with the survey (in particular the request to let the most knowledgeable person answer it) and the imple-
mentation of the survey both made it possible that even these two latter remedies could be applied by respondents
in each firm individually.
In terms of statistical ex post evaluation of the presence of common method bias in the data finally used in the
analysis, Harman’s single-factor test was used to establish whether one single factor accounting for most of the
variance in the data could be identified from the unrotated solution in a factor analysis. The unrotated factor solu-
tion yields 34 factors that have eigenvalues larger than unity. The first three factors explain 7.9, 5.3 and 4.4%,
respectively whilst the remaining factors with eigenvalues greater than unity explain between 0.4 and 4.3% of the
variance in the data. This is strong evidence against the existence of one general factor accounting for most of the
variance in the data. Common method variance seems therefore not to be a critical issue in the data in terms of
both ex ante procedural precautions and ex post statistical evidence.
As concerns non-response bias, it is possible that the replies received contain over-proportionally many firms
that are particularly active in terms of environmental management. Such a bias is a frequent problem of surveys
based on written questionnaires (Armstrong and Overton, 1977). However, there is also broad variability in the
responses, indicating that the data also includes many environmentally inactive and less active firms. Also, in the
case of the German responses, the characteristics and response behaviour of early respondents were not signifi-
cantly different from the late replies, based on comparison of means for all variables between the first and last
10% of respondents, and similar findings were made for the other countries. Beyond this, it was unfortunately not
possible to assess non-response bias since no data on firm characteristics of non-respondents was available to
compare with those of the responding firms. In some countries it may have been that more than one site of a firm
responded, but this seems to have been a very limited occurrence. For example, in Norway, the 151 manufacturing
firms responding were all separate entities. In Germany for five firms two sites each responded, and in the United
Kingdom for one firm two sites responded. All these responses were kept in the sample, since the survey had
requested a response from a site perspective if a site responds, and hence no distortion is expected to result from
4
The full questionnaire on which the survey was based can be accessed in English at www.agf.org.uk/pubs/pdfs/UK.pdf. The response rates
varied across countries (e.g. Germany 16.7%, Hungary 35.2%, Switzerland 14.9%, Sweden 36.3%, the Netherlands 18.1%, Norway 22.2% and
the United Kingdom 10.7%), as they also do e.g. in the European Community Innovation Survey (Smith, 2005, p. 168). The country managers
for the survey stated as reasons for this e.g. lower responses from smaller firms (in the case of Norway, Switzerland, the UK and Germany),
a decreasing interest of especially large and medium-sized firms in participating in survey research (in the Netherlands) and (in Hungary)
a generally strong interest in environmental issues (Baumast and Dyllick, 2001; Harkai and Pataki, 2001; Batenburg, 2006). The very low
response rate in the UK is additionally explained by the fact that no second mailing was sent to those firms who did not respond to the first
invitation to participate in the survey.

Copyright © 2009 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 122–136 (2009)
DOI: 10.1002/bse
126 M. Wagner

different sites responding to the survey. The responding sites were also independent legal entities. For 10
responses, no firm or site name was provided. There is a possibility of these being double responses, which however
would mathematically extend the extent of having more than one response per firm in the data to at most 0.9%
of the respondents, and it was therefore decided to also keep these 10 anonymous responses in the sample. In the
appendix, Tables A1 and A2 provide an overview in terms of a sample breakdown by country and industry and
general descriptive statistics.

Variables and Measurement

The survey inquired about environmentally beneficial product and process innovations (referring to ‘green’ design
of a new product and implementation of cleaner technology in the years 1998–2000), which are the dependent
variables of my analysis. Firms answered these questions with ‘yes’ or ‘no’ or could choose that the question was
not applicable to their circumstances, in which case they were excluded from the analysis. Whilst it would be
desirable to have a more detailed measure of the level of innovation, this was unfortunately beyond the scope of
the survey and also is a common caveat of many innovation surveys, such as for example the Community Innova-
tion Survey in the EU (Smith, 2005).
The independent variables for the models are based on prior empirical work in industrial and innovation eco-
nomics (Schmalensee, 1989; Wagner, 1992, 1995; Ziegler and Rennings, 2004). The independent variables iden-
tified in this literature include firm size, firm age, industry membership, country origin of a firm, existence of a
quality management system and firm legal structure. In addition to these variables, following the environmental
management literature (e.g. Brío and Junquera, 2003; Karl and Orwat, 1999; Pujari, 2006; Russo, 2002; Wagner
and Schaltegger, 2004) I include a dummy measure for whether environmental aspects have competitive relevance
for a firm as did Ziegler and Rennings (2004) and variables for whether firms carry out eco-labelling of or market
research on ‘green’ products and for whether firms inform their customers about specific environmentally benefi-
cial features of their products.5 To address the second research question, country scores for masculinity, uncertainty
avoidance, power distance, individualism and for transparency and stability of regulation as well as the stringency
of enforcement and regulation are investigated.
From the considerations in the section on theory development it becomes clear that it would be desirable to
measure the level of EMS implementation independent of certification, since the two refer to different aspects of
EMSs. To this end, I measure the EMS influence as an index variable defined by 10 common EMS activities.6 The
index variable is defined as the sum of these activities, with α = 0.91, confirming its reliability and internal con-
sistency. As concerns the validity of the index, Figure 1 shows a very strong association of the index with an
aggregate measure of EMS implementation based on a single survey question with four response levels. For any
two levels the index mean values between them differ significantly.
Table A3 provides an overview of all explanatory variables used in the model, together with their detailed
definitions.
Whilst for addressing the first research question interaction terms can be constructed straightforwardly based
on the country location variables already included in the model, addressing the second research question requires
additional variables. The national culture of a country is measured based on the work of Hofstede (2001) by means
of four additional variables referring to his well established dimensions of masculinity, uncertainty avoidance,
individualism and power distance. The regulatory framework is measured through variables on the stringency and
5
The dummy for competitive relevance of environmental aspects is based on the question of whether the environmental activities of the
responding company influenced its competitiveness. If the firms stated that their activities had a very positive or positive effect on competitive-
ness, the dummy was coded 1; if they stated it had no, a negative or a very negative effect it was coded 0. I opt against interacting this dummy
with the EMS implementation index since much of the variation relating to the interaction of competitive relevance and EMS implementation
seems to be already picked up by interacting country and EMS integration. An interaction term experimentally introduced was not significant
in any model.
6
The following 10 EMS elements (measured as binary yes/no variables implemented in 1998 to 2000) constitute the index: written environ-
mental policy, process for identification and evaluation of legal requirements, initial environmental review, definition of measurable envi-
ronmental goals, programme to attain measurable environmental goals, clearly defined responsibilities, environmental training programme,
environmental goals are part of a continuous improvement process, separate environmental/health/safety report or environmental statement
and audit system to check environmental programme. The index ranges from 0 (no activity) to 10 (all activities carried out). None of the EMS
elements in the index refers to technological process innovation. Equal weights are assigned to each element in the absence of agreed weight-
ing schemes.

Copyright © 2009 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 122–136 (2009)
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Interaction Effects for EMS-Innovation Links 127

10

95% confidence interval of the

9

number of EMS elements

8

non-existent considered in progress finished (fully

implemented)

EMS implementation is ...

Figure 1. Confidence intervals of EMS index and aggregate EMS implementation evaluation

consistency of country environmental regulation in 2000 (WEF et al., 2001) and the transparency and stability
of environmental regulation in 1999 (WEF et al., 2000) as well as an index assessing regulatory enforcement,
regulatory structure and environmental institutions (Esty and Porter, 2001).

Estimation Procedures
For the binary dependent variables used in this analysis, binary discrete choice models are appropriate and here
more specifically the multivariate probit model (Greene, 2003, pp. 714–719), which applies when error terms are
correlated, after the influence of the explanatory variables in the model is accounted for (Greene, 2003, p. 717). As
concerns the analysis strategy, I initially estimate a multivariate probit model with country location interacted with
EMS implementation levels in order to address the first research question derived in the section on theory devel-
opment, i.e. whether the EMS influence on the probability of environmental innovation activities is moderated by
country effects. I then use a more extended specification by adding the interaction terms between Hofstede’s
national culture as well as the regulatory framework variables and EMS implementation to address the second
research question. Data for all countries surveyed are pooled. Results are reported in the next section. Prior to
analysing the research questions, an inspection of Tables A1 and A4 in the appendix clarifies that no extreme
outliers confound the regression analysis, and that multicollinearity is not an issue in the estimation of the regres-
sion models. The analysis of additional data gathered for 40 German firms in 2005 shows that firms carrying out
environmental product innovation in 2003–2005 is significantly correlated at the 10% level with informing cus-
tomers as well as carrying out market research in 1998–2000, and that these activities are also positively correlated
with the environmental product innovation variable used in the analysis, which makes reverse causality unlikely.
Reverse causality cannot be fully ruled out completely in the case of eco-labelling, where no significant correlation
in either direction was found. However, since in half of all possible sequences of innovation and labelling (which
each can take place in 1998, 1999 or 2000 in the data analysed), innovation takes place before eco-labelling, a
positive effect from prior eco-labelling experiences on environmentally related product innovation is possible.

Results

In the section on theory development I stated two research questions, namely whether the association of EMSs
and the probability of firms to pursue environmentally beneficial innovations is moderated by country location
and whether more specifically any interaction of EMS implementation can be traced back to national cultures or
regulatory frameworks. Table 1 provides results after inclusion of the interaction terms of country location and

Copyright © 2009 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 122–136 (2009)
DOI: 10.1002/bse
128 M. Wagner

EMS implementation as suggested in the first research question. The model is overall significant and the hypoth-
esis of (weakly) correlated error terms cannot be rejected, justifying simultaneous estimation in a multivariate
probit model, rather than two separate models for product and process innovation.
What can be seen from Table 1 is that, in the case of product innovation, the associations with the interaction
terms are all insignificant, as is the separate variable for EMS implementation. Instead, the variables on whether
environmental aspects are a competitive factor, whether firms inform customers on environmental features of
their products, whether they carry out market research on ‘green’ products and whether they use eco-labels are all
significant for product innovation. EMS implementation on its own is also not significantly associated with the
propensity of firms to pursue environmentally beneficial process innovation. This is as expected since now the
interaction variables explain part of the variance potentially explained by the EMS index. As concerns the interac-
tion terms, these are found to be significantly positively associated with the propensity of a firm to pursue envi-
ronmentally beneficial process innovations in the cases of Norway, the Netherlands, Germany, Sweden and the
UK. Beyond the effect of the interaction terms, carrying out market research, next to being significantly associated
with product innovation, also has a positive effect on process innovations.7

Type of environmental innovation Product innovation Process innovation

Netherlands × EMS index −0.02 (0.07) 0.12 (0.06)†

Germany × EMS index −0.01 (0.07) 0.13 (0.06)*
Sweden × EMS index 0.07 (0.08) 0.18 (0.07)**
Switzerland × EMS index −0.05 (0.08) 0.12 (0.08)
United Kingdom × EMS index 0.03 (0.08) 0.15 (0.07)*
Hungary × EMS index −0.14 (0.10) 0.04 (0.11)
Belgium × EMS index −0.01 (0.08) 0.09 (0.07)
Norway × EMS index −0.03 (0.10) 0.17 (0.09)†
Firm age 0.27 (0.15)† −0.13 (0.14)
Quality management system 0.10 (0.14) 0.05 (0.13)
Firm size 0.04 (0.03) 0.03 (0.02)
Company in sole proprietorship 0.19 (0.12) 0.15 (0.11)
Environment as a competitive factor 0.48 (0.13)*** 0.15 (0.12)
Environmental management system index 0.02 (0.06) −0.03 (0.05)
Informing consumers 0.53 (0.12)*** 0.14 (0.12)
Market research on ‘green’ products 0.90 (0.16)*** 0.57 (0.16)***
Eco-labelling 0.68 (0.15)*** −0.07 (0.14)
Constant −1.84 (0.38)*** −0.46 (0.33)
Observations 762
Log likelihood −829.25
Test for joint significance of countries 24.25†
Test for joint significance of industries 540.21***
Rprocess innovation, product innovation 0.17**
Likelihood ratio test of no correlation 6.26*

Table 1. Multivariate probit model of product and process innovation with interaction terms for country locationa
a
Robust standard errors in parentheses; country omitted: France; industry omitted: metals; for industry and country dummies
only joint significance is reported in the results.
†
p < 0.10; * p < 0.05; ** p < 0.01; *** p < 0.001.
7
In order to understand whether there are differences in the results between firms with and without an EMS certified according to EMAS or
ISO 14001, the subset of firms in the sample that are not certified was analysed using specification with country location interaction effects.
The results of these estimations are not reported here for brevity, but are available from the author upon request. They reveal that the interac-
tion effects are all insignificant, and that the overall EMS effect (without interactions) is similarly strong for certified and uncertified firms for
process innovation. For product innovation, there is also no difference between firms with and without certified EMSs as concerns drivers for
innovation. A likely reason for this result for the non-certified firms seems to be that benefits such as reduced inspection frequencies, financial
support or research/development support is only granted if an EMS is certified or validated. Therefore, certification seems to have a more
indirect role in enabling benefits of EMS implementation from flexible regulations or governmental support schemes, justifying the use of an
EMS index constructed independent from certification or verification. Certification and verification of an EMS should, based on these results,
be treated as a separate factor, potentially enabling effects from EMS implementation depending on (country-specific) regulatory contexts.

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Interaction Effects for EMS-Innovation Links 129

Addressing the second research question, Table 2 provides the results concerning the more specific variables
related to national cultures and regulatory frameworks. As can be seen, the assumption that the error terms are
uncorrelated can again be rejected, confirming that the use of a multivariate probit model is more appropriate
than estimating two independent binary probit models. In addition, the model is overall significant.
Table 2 shows that uncertainty avoidance is significantly positively associated with environmentally beneficial
product innovation, but that the interaction of uncertainty avoidance and EMS implementation is significantly
negatively associated. Opposed to this, process innovation is significantly positively associated with the (unmoder-
ated) level of EMS implementation and negatively with regulatory stringency. As in the model reported in
Table 1, therefore, the factors significantly associated with environmental product and process innovation differ
considerably.

Discussion and Conclusions

In this research I address two important research questions relating to the link between environmentally beneficial
innovation activities and the implementation of EMSs in two analysis steps, based on multivariate probit
models.

Type of environmental innovation Product innovation Process innovation

Masculinity −0.003 (0.01) −0.01 (0.01)

Uncertainty avoidance 0.04 (0.02)* 0.02 (0.01)
Power distance −0.03 (0.02) 0.004 (0.02)
Individualism 0.01 (0.02) 0.03 (0.02)
Stringency and consistency of regulation 0.40 (0.57) 0.68 (0.56)
Transparency and stability of regulation 0.48 (0.52) 0.38 (0.45)
Stringency of enforcement and institutions 0.15 (0.56) −1.04 (0.56)†
Environmental management system index 0.34 (0.44) 0.68 (0.39)†
Masculinity × EMS index 0.001 (0.001) 0.001 (0.001)
Uncertainty avoidance × EMS index −0.004 (0.002)† −0.003 (0.002)
Power distance × EMS index 0.004 (0.003) −0.001 (0.003)
Individualism × EMS index −0.001 (0.004) −0.0001 (0.003)
Stringency and consistency × EMS index −0.07 (0.08) −0.005 (0.078)
Transparency and stability × EMS index 0.04 (0.08) −0.11 (0.07)
Enforcement and institutions × EMS index 0.01 (0.08) 0.07 (0.08)
Firm age 0.26 (0.15)† −0.14 (0.14)
Quality management system 0.09 (0.14) 0.05 (0.13)
Firm size 0.04 (0.03) 0.03 (0.02)
Company in sole proprietorship 0.20 (0.12)† 0.16 (0.11)
Environment as a competitive factor 0.47 (0.13)*** 0.14 (0.12)
Informing consumers 0.53 (0.12)*** 0.14 (0.12)
Market research on ‘green’ products 0.89 (0.16)*** 0.57 (0.16)***
Eco-labelling 0.67 (0.15)*** −0.07 (0.14)
Constant −6.00 (3.13)† −4.72 (2.80)†
Observations 762
Log likelihood −832.00
Test for joint significance of industries 554.37***
Rprocess innovation, product innovation 0.18**
Likelihood ratio test of no correlation 6.64**

Table 2. Multivariate probit model of product and process innovation with interaction terms for national culture and regulatory
frameworksa
a
Robust standard errors in parentheses; industry omitted: metals; for industry dummies only joint significance is reported in the
results.
†
p < 0.10; * p < 0.05; ** p < 0.01; *** p < 0.001.

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DOI: 10.1002/bse
130 M. Wagner

The first research question is whether the association of EMSs and the probability of firms to pursue environ-
mentally beneficial innovations is moderated by country location. Based on a multivariate probit model, I conclude
that EMS implementation is associated environmental process innovation and this is indeed moderated by country
location. With interaction effects between country location and EMS implementation introduced in the model, the
EMS index variable on its own does not show any significant association for the case of process innovation.
However, the interaction variables are significant in case of the Netherlands, Germany, Norway, Sweden and the
UK. I interpret this as a more localized effect of EMS implementation on innovation activity; i.e., only under spe-
cific circumstances is implementation of an EMS associated with a higher propensity to innovate. In all cases
where the association between interaction variables and process innovation is significant it is also positive, and in
the respective countries specific initiatives aimed at firms with an EMS exist; for example, public research pro-
grammes exist for integrated environmental technologies as do subsidies for firms to implement such technologies
that are linked to the existence of EMSs. The results therefore indicate that EMSs are most effective in terms of
increasing social welfare if complementary environmental policy measures are implemented to support EMSs, e.g.
in terms of enabling better learning and transfer of knowledge.
Opposed to this, for environmentally beneficial product innovation the EMS implementation effect is insignifi-
cant and no significant country interaction effects are found. Instead, as also shown by Berchicci and Bodewes
(2005), market- and product-related environmental management activities exist that are not usually part of an EMS
but have a much stronger association with the propensity to carry out such innovation. Overall, the strongest effect
was found for market research, followed by eco-labelling and informing consumers, and market research also had
an effect on process innovation. Given these results, it seems that EMS implementation is largely relevant for
process innovation, which, in line with the findings of Könnölä and Unruh (2007), cautions about any effects of
EMS implementation (and certification) on product innovation.
With regard to the second research question on whether more specifically any interaction of EMS implementa-
tion can be traced back to national cultures or regulatory frameworks, the main finding is that national culture
matters mostly for product innovation, whereas regulatory frameworks are exclusively found to have significant
effects for process innovation. More specifically, as concerns Hofstede’s dimensions of national culture, uncer-
tainty avoidance seems mainly to matter. Interestingly, there is an additional countering effect from the interaction
of uncertainty avoidance with EMS implementation, so that in essence the link between innovation and uncertainty
avoidance is curvilinear.
As concerns regulatory framework conditions, stringency of enforcement and institutions mainly has a signifi-
cant negative association with environmental process innovation. Therefore, lower levels of flexibility, e.g. because
specific technologies are prescribed for achieving emission reductions, reduce the chances of environmental
process innovation being pursued. Given that the other variables addressing regulatory framework conditions are
not significant, whereas the country location variables show a relatively clear pattern, the results seem to indicate
that it is more the joint effect of national culture, regulatory framework and other factors such as demand condi-
tions, e.g. in terms of the existence of lead markets for ‘green’ products (Beise and Rennings, 2003), that moder-
ates the effect of EMS implementation, rather than the individual factors on their own, but, regardless of this,
moderation effects clearly matter.
In summary, the analysis provides evidence that the overall approach to environmental regulation and national
cultures into which EMS implementation is embedded in a country are crucial in determining any association
between EMSs and environmentally beneficial innovation activities. This has rarely been taken into account
in academic work and comparative studies and needs to be taken into account in future theorizing on the
subject.
In terms of managerial implications, country effects matter in terms of both national cultures and regulatory
regimes. For managers the results mean that national cultures or regulatory frameworks may well impede their
initiatives of using EMSs to foster environmentally beneficial innovations in their companies. Also the findings
show that it is not only individual factors, but also their interplay, that may significantly hinder or support
firms’ or sites’ attempts at using EMSs in order to improve their organization’s performance with regard to
innovativeness.
Finally, managers should note that the association of EMSs with innovation only holds for process, not for
product innovation, for which very different factors that are much less related to EMS and regulatory frameworks

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DOI: 10.1002/bse
Interaction Effects for EMS-Innovation Links 131

seem to matter. Hence, if management wishes to further expand the share of ‘green’ products in their product
portfolio, means other than EMSs may be more appropriate.
Concerning the limitations of the research, variation in response rates across countries, the potential for self-
selection and issues of self-assessment are to be mentioned. However, as concerns response rate variations other
than low responses of small firms, no systematic non-response of specific groups of firms was found, which also
makes self-selection of respondents less likely. Self-assessment is a concern with regard to common method bias,
but testing for this indicated that it is not a problem here. Given the common limitations of survey data based on
self-assessment, it would nevertheless be desirable to carry out confirmatory analyses with data from other sources
not relying on self-assessment. As well, the age of the data may be an issue, since at the time of the survey certi-
fication of EMSs was less widely in use than it is today and also differences between the EMAS and ISO 14001
standards were more pronounced. In addition to this, the European focus of the analysis may be an issue for the
generalizability of the findings. However, a European focus is complementary to earlier research on EMSs and
their certification, which has focussed on the US. In summary, none of the limitations identified seem to be so
severe that they would jeopardize the analysis reported here. Given the convergence of certification standards and
the much wider diffusion of certified EMSs, a replication study with more recent data would however be very
desirable to provide a dynamic view on the role of EMSs for environmentally beneficial innovation.

Acknowledgements
I am grateful for the detailed comments and suggestions of two anonymous reviewers as well as the guidance and support of
the special issue editors Henning Madsen and John Parm Ulhøi. Work on this paper was supported by a Marie Curie Intra-
European Fellowship within the Sixth European Community Framework Programme. Any remaining errors are mine.

Appendix

Table A1 provides an overview of the breakdown of respondents by country and industry sector. Table A2 provides
descriptive statistics for all variables used, Table A3 summarizes the definition of all variables used in the empir-
ical analysis and Table A4 gives correlations.

Industry NL D S CH UK HUN FRA BEL NOR Total

Food products, tobacco 55 39 20 13 6 27 2 37 28 227

Textile products 6 15 6 5 7 33 11 17 8 108
Leather products 1 1 11 1 1 15
Wood products 10 1 29 3 6 7 3 15 10 84
Pulp & paper products 14 11 12 3 3 11 4 9 9 76
Publishing & printing 18 23 18 3 14 4 7 12 99
Energy; cokes, oil fuel 3 2 1 3 9 3 1 22
Chemical products, fibres 16 24 17 13 18 10 23 32 10 163
Rubber & plastic 28 16 19 11 5 11 10 17 7 124
Non-ferrous mineral products 12 17 1 3 4 16 3 15 8 79
Metal products 94 44 78 18 23 16 30 48 35 386
Machines & equipment 30 35 30 12 12 20 22 15 7 183
Electrical & optical equipment 12 34 15 17 13 8 10 8 9 126
Transport products 6 17 6 1 9 10 12 6 2 69
Other 56 56 34 9 54 3 4 54 8 278
Total 360 334 286 112 178 192 142 282 153 2039

Table A1. Overview of sector and country distribution of respondents

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132 M. Wagner

Variable N Minimum Maximum Mean Std dev.

Company in sole proprietorship 2047 0.00 1.00 0.40 0.49

Eco-labelling 1750 0.00 1.00 0.17 0.37
Informing consumers 1780 0.00 1.00 0.35 0.48
Market research on ‘green’ products 1694 0.00 1.00 0.15 0.35
Environment as competitive factor 1855 0.00 1.00 0.33 0.47
Firm age 1973 0.30 2.83 1.61 0.39
Netherlands 2095 0.00 1.00 0.17 0.38
Germany 2095 0.00 1.00 0.16 0.37
Sweden 2095 0.00 1.00 0.14 0.35
Switzerland 2095 0.00 1.00 0.06 0.23
United Kingdom 2095 0.00 1.00 0.10 0.30
Hungary 2095 0.00 1.00 0.09 0.29
France 2095 0.00 1.00 0.07 0.26
Belgium 2095 0.00 1.00 0.14 0.34
Norway 2095 0.00 1.00 0.07 0.26
Masculinity (Hofstede) 2095 43.32 28.57 5 88
Uncertainty avoidance (Hofstede) 2095 60.39 21.57 29 94
Power distance (Hofstede) 2095 42.023 12.88 31 68
Individualism (Hofstede) 2095 74.80 6.74 67 89
Stringency of enforcement and institutions 2095 1.15 0.52 −0.28 1.74
Stringency and consistency of regulation 2095 1.20 0.57 −0.23 1.82
Transparency and stability of regulation 2095 4.07 0.40 3.3 4.6
Firm size 2064 0.00 316.00 1.34 10.54
Textile products 2039 0.00 1.00 0.05 0.22
Leather products 2039 0.00 1.00 0.01 0.09
Wood products 2039 0.00 1.00 0.04 0.20
Pulp and paper products 2039 0.00 1.00 0.04 0.19
Publishing and printing 2039 0.00 1.00 0.05 0.21
Energy, cokes and oil fuel 2039 0.00 1.00 0.01 0.10
Chemical products and fibres 2039 0.00 1.00 0.08 0.27
Rubber and plastics 2039 0.00 1.00 0.06 0.24
Non-ferrous mineral products 2039 0.00 1.00 0.04 0.19
Metal products 2039 0.00 1.00 0.19 0.39
Machine equipment 2039 0.00 1.00 0.09 0.29
Electrical and optical equipment 2039 0.00 1.00 0.06 0.24
Transport products 2039 0.00 1.00 0.03 0.18
Other manufacturing 2039 0.00 1.00 0.14 0.34
Food, tobacco 2039 0.00 1.00 0.11 0.31
Environmental product innovation 1314 0.00 1.00 0.41 0.49
Environmental process innovation 1584 0.00 1.00 0.56 0.50
Environmental management system index 1693 0.00 10.00 5.65 3.48
Existence of a quality standard 1998 0.00 1.00 0.73 0.44

Table A2. Descriptive statistics

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Interaction Effects for EMS-Innovation Links 133

Concept Variable Description Type

EMS and Environmental management index measuring the implementation level of an dummy
environmental system index environmental management system in the firm
management Market research firm did ‘green’ product market research in 1998 to 2000 dummy
variables Informing consumers firm informed consumers about environmental effects of dummy
products and processes in 1998 to 2000
Eco-labelling firm made use of eco-labelling in 1998 to 2000 dummy
QMS Quality system dummy taking value 1 if no QMS exists in 2000 dummy
Country Belgium firm located in Belgium dummy
France firm located in France (reference; omitted in estimation) dummy
Hungary firm located in Hungary dummy
Netherlands firm located in the Netherlands dummy
Norway firm located in Norway dummy
Sweden firm located in Sweden dummy
Switzerland firm located in Switzerland dummy
United Kingdom firm located in the United Kingdom dummy
Germany firm located in Germany dummy
Sector control Food/tobacco firm in food & tobacco sector dummy
variables Textiles firm in textile products sector dummy
(based on Pulp & paper firm in pulp & paper products sector dummy
two-digit Printing firm in printing & publishing sector dummy
NACE codes) Energy, oil etc. firm in energy, oil & nuclear fuels sector dummy
Chemicals firm in chemicals & fibres sector dummy
Rubber & plastic firm in rubber & plastic products sector dummy
Non-ferrous firm in non-ferrous mineral products sector dummy
Machinery firm in machines & equipment sector dummy
Electrical & optical firm in electrical & optical products sector dummy
Transport products firm in transport products sector dummy
Metal products firm in metals products sector (reference; omitted in dummy
estimation)
Other manufacturing products firm in sector producing other manufacturing products dummy
Firm size No. of employees number of employees (in thousands) as average of 2002 cont.
National culture Masculinity country indices of Hofstede (2001) cont.
Uncertainty avoidance country indices of Hofstede (2001) cont.
Individualism country indices of Hofstede (2001) cont.
Power distance country indices of Hofstede (2001) cont.
Regulatory Stringency and consistency 2000 country scores based on WEF et al. (2001) cont.
regime Transparency and stability 1999 country scores based on WEF et al. (2000) cont.
Enforcement and institutions country indices based on Esty and Porter (2001) cont.
Other control Firm age logarithm of firm age in years in 2000 cont.
variables Firm legal status dummy of value 1 if firm is solely owned dummy
Competitive factor environment dummy taking value of 1 if the environment is an dummy
important competitive factor

Table A3. Summary of definitions for independent variables used in the empirical analysis

Copyright © 2009 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 122–136 (2009)
DOI: 10.1002/bse
 134

Variable (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15)

Market research (2) 0.31**

Informing consumers (3) 0.31** 0.33**
Firm age (4) 0.07** 0.08** 0.08**

Copyright © 2009 John Wiley & Sons, Ltd and ERP Environment
QMS (5) 0.003 0.02 0.10** 0.06*
EMS index (6) 0.15** 0.19** 0.33* 0.16** 0.32**
Env. competitive factor (7) 0.15** 0.21** 0.28** −0.02 0.13** 0.34**
Number of employees (8) −0.05 −0.09** 0.08** 0.08** 0.04† 0.11** 0.06**
Sole proprietorship (9) −0.03 −0.01 −0.05* −0.07** −0.21** −0.26** −0.06* 0.06**
Masculinity (10) −0.07** 0.06** −0.05* −0.18** −0.10** −0.20** −0.01 0.06** 0.27**
Uncertainty avoidance (11) −0.14** −0.01 −0.08** −0.17** −0.12** −0.12** −0.11** −0.02 0.15** 0.52**
Individualism (12) −0.12** −0.01 −0.08** −0.05* −0.08** −0.15** −0.06* 0.02 −0.02 0.13** −0.16**
Power distance (13) −0.13** −0.02 −0.08** −0.12** −0.11** −0.10** −0.09** −0.03 0.02 0.28** 0.85** 0.05*
Stringency & consistency (14) 0.05* −0.01 0.05* 0.31** 0.09** 0.18** −0.16** 0.003 −0.18** −0.47** −0.49** −0.45** −0.50**
Transparency & stability (15) 0.01 0.004 −0.01 0.20** 0.12** 0.06† −0.02* 0.05* −0.13** −0.29** −0.76** 0.14** −0.68** 0.53**
Enforcement/institutions (16) 0.10** 0.02 0.07** 0.30** 0.12** 0.18** −0.13** 0.03 −0.13** −0.64** −0.45** −0.37** −0.24** 0.83** 0.58**

Table A4. Correlation of explanatory variables (without dummy variables; †p < 0.10, * p < 0.05, ** p < 0.01; (1) eco-labelling)

DOI: 10.1002/bse
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M. Wagner
Interaction Effects for EMS-Innovation Links 135

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