The determinants of ISO14001 adoption have been considered to fall into two categories:
the external pressure from environment-oriented stakeholders or customers; the internal
need due to expected future benefits. In this paper we take a step further to elaborate
on the mechanism of firms’ adoption by investigating the interrelationship among firms’
productivity, capital intensity and the decision-making of the adoption. Applying a general
equilibrium model, we show that under optimal condition, highly productive firms can benefit
more from the adoption. In the meantime technology advancement potentially drives up the
capital intensity of the firms, and this factor will positively affect firms’ incentive of adoption
as well. The empirical practice using the firm-level data in Vietnam verifies our predictions
with robustness. In addition, we find that the phenomenon outlined above becomes even
more obvious in the manufacturing sectors.