Peer Effects in Corporate ESG: Evidence from Mandatory Disclosure and Philanthropic Giving

We examine the peer effects of corporate environmental, social, and governance (ESG) activities in an international context. We consider U.S. multinational enterprises (MNEs) doing business in foreign host countries and local firms in those countries as peers, as they both operate within the same host market. This setting allows us to leverage the staggered introduction of mandatory ESG disclosure regulations in foreign host countries as an exogenous shock, as these regulations apply exclusively to local firms and not to U.S. MNEs. Focusing on philanthropic giving as a key component of firms’ ESG strategies, we find that U.S. MNEs increase their likelihood of donating in the host country following the mandate, consistent with local mimetic isomorphism. This pattern is more pronounced among MNEs facing higher liability of foreignness (LOF), those operating in controversial industries, and firms more reliant on host-country government contracts. Donation increases are also larger when local firms exhibit greater increases in giving and when host countries are more important to MNEs’ global operations. In addition, we find that higher post-mandate donations are associated with improved access to foreign government contracts and, subsequently, more favorable valuation outcomes.