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Governing Global Externalities: Investor Voice Amid Fragmented Policy

Abstract
We study whether investor voice can help address global externalities under fragmented regulation. In our setting, a multinational firm generates externalities across jurisdictions, national regulators face political frictions that can impede corrective regulation, and policy differences create scope for regulatory arbitrage and production leakage. We compare two channels of investor influence: corporate stewardship, which affects firms' global operations, and policy advocacy, which affects local regulation. Both channels can help address global externalities, but their relative effectiveness depends on political frictions abroad. When these frictions are severe enough to prevent foreign regulation, leakage weakens policy advocacy but strengthens stewardship. When foreign regulation is politically feasible, however, stewardship can crowd out foreign regulation and reinforce policy miscoordination, while local policy advocacy can crowd in foreign regulation and reduce externalities abroad.