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ISO 14001 in Europe and in the United States

2 ABSTRACT This paper analyses the importance of regulatory credibility to support non-redeployable investments. It shows the impact of regulatory credibility in Europe and in the U.S. on the perceived transaction of obtaining ISO 14001 certification. ISO 14001 provides the basic framework for the establishment of an Environmental Management System (EMS) that can be audited and can lead to certification. However, firms might identify regulatory violations during the implementation of the environmental certification. The adoption of the standard might thus be associated with high transaction costs if regulatory agencies were to use such information against firms. Firms seem reluctant to engage in such a transaction when there is uncertainty on regulatory agencies behavior in such matter. In addition, this paper describes the importance of the institutional environment to facilitate the development of resources that will help firms to transform ISO 14001 into a competitive advantage. Since ISO 14001 is a voluntary standard, firms will implement ISO 14001 if they believe that the potential transaction costs of acquiring certification will be offset by the advantages the certification will ultimately provide to the firm. The Institutional Environment can impact both the cost of acquiring certification as well as the ability of firms to reap the full benefits from certification. Building on the New Institutional Economics and on the resource-based view of the firm, this paper proposes a conceptual framework to explain the factors that either hamper or facilitate the adoption of an EMS standard in a specific institutional setting. The analysis is supported by primary data collected from a phone questionnaire to 140 firms in Europe and a questionnaire mailed to 55 firms in the U.S.