The effect of cross-listing on corporate social responsibility

In this paper we study the relationship between cross-listing and the ESG (environment, social, and governance) performance of firms. We propose that cross-listing is associated with higher ESG ratings, because cross-listed firms have to respond to a higher number of stakeholders with heterogeneous expectations and they need to improve their ESG performance to overcome the liability of foreignness. We test our hypotheses on the firms included in the S&P Global 1200 index, observed over the 2008-2012 period, using information taken from the Asset4 dataset. We find that cross-listed firms have actually higher ESG performance than non-cross-listed firms, after controlling for firm, industry, and country heterogeneity. Our findings support the view that CSR help firms in their internationalization efforts. The effect is moderated by the investor protection regime in the listing country: higher protection is associated with better corporate governance and with lower environmental and social performance. This suggests that a focus on shareholder value can limit managerial discretion to adopt a long- term stakeholder view. We also find that single stock exchanges can have specific effects on the cross-listed firms, even when the investor protection regime is similar, indicating that informal pressures complement enforceable regulation in shaping firm ESG performance.