This paper tests the significance of three variants of the Porter Hypothesis using data from approximately 4200 facilities in seven OECD countries. The three variants are: the "weak" version, which suggests that environmental regulation stimulates certain types of environmental innovation; the "narrow" version, which posits that flexible environmental policy instruments, such as pollution charges or tradable permits, give firms greater incentive to innovate than prescriptive regulations; and the "strong" version, which suggests that properly designed regulation may induce innovation that more than compensates for the cost of compliance. The analysis finds strong support for the "weak" version, qualified support for the "narrow" version, and qualified support for the "strong" version. The study uses a unique database collected by the OECD in 2003, which includes observations on environmental policy, research and development, environmental performance, and business performance. The results suggest that environmental regulation can stimulate innovation, but that the impact on business performance is mixed. The study also finds that environmental performance is positively related to business performance, but that the stringency of environmental policy has a negative impact on business performance. The findings support the idea that environmental regulation can lead to innovation, but that the overall impact on business performance is not always positive. The study also finds that environmental performance is more closely related to business performance than environmental regulation is. The results suggest that environmental regulation can have a positive impact on innovation, but that the overall impact on business performance is not always positive. The study also finds that environmental performance is more closely related to business performance than environmental regulation is. The findings support the idea that environmental regulation can lead to innovation, but that the overall impact on business performance is not always positive.This paper tests the significance of three variants of the Porter Hypothesis using data from approximately 4200 facilities in seven OECD countries. The three variants are: the "weak" version, which suggests that environmental regulation stimulates certain types of environmental innovation; the "narrow" version, which posits that flexible environmental policy instruments, such as pollution charges or tradable permits, give firms greater incentive to innovate than prescriptive regulations; and the "strong" version, which suggests that properly designed regulation may induce innovation that more than compensates for the cost of compliance. The analysis finds strong support for the "weak" version, qualified support for the "narrow" version, and qualified support for the "strong" version. The study uses a unique database collected by the OECD in 2003, which includes observations on environmental policy, research and development, environmental performance, and business performance. The results suggest that environmental regulation can stimulate innovation, but that the impact on business performance is mixed. The study also finds that environmental performance is positively related to business performance, but that the stringency of environmental policy has a negative impact on business performance. The findings support the idea that environmental regulation can lead to innovation, but that the overall impact on business performance is not always positive. The study also finds that environmental performance is more closely related to business performance than environmental regulation is. The results suggest that environmental regulation can have a positive impact on innovation, but that the overall impact on business performance is not always positive. The study also finds that environmental performance is more closely related to business performance than environmental regulation is. The findings support the idea that environmental regulation can lead to innovation, but that the overall impact on business performance is not always positive.