ESG rating and financial performance in the emerging markets: The moderating effects of cross-listing and industry type

This study examines the moderating effects of cross-listing and industry type on the relationship between environmental, social, and governance (ESG) performance and corporate financial performance (CFP) in emerging markets. We find that only cross-listed firms experience a favorable stock market response to improved ESG performance, particularly when signaling their commitment by listing in a developed market. However, they do not gain operational benefits from ESG activities, unlike non-cross-listed firms, possibly due to bonding costs. Additionally, industry type moderates the ESG-CFP relationship, with consumer goods and financial sectors showing positive market responses, while consumer services and technology sectors benefit in operational performance. Chinese firms exhibit limited gains from ESG efforts. Excluding Chinese firms reveals a negative ESG-CFP relationship in the healthcare sector. Overall, our study provides insights into the complex interplay among ESG, CFP, cross-listing, and industry characteristics, contributing to both theoretical understanding and practical implications for stakeholders.