Cross-border ESG regulations and corporate compliance: the role of policy compliance willingness in shaping ESG performance

Corporate ESG (Environmental, Social, and Governance) performance has attracted growing scrutiny from regulators, investors, and the public, yet how and why firms respond heterogeneously to ESG mandates remains less understood. Drawing on policy compliance and cross-border regulatory theories, we examine how firms' internal compliance willingness interacts with cross-border regulatory spillovers to shape ESG performance. Exploiting Hong Kong's 2019 ESG disclosure reform as a quasi-experimental case, we employ a generalized difference-in-differences analysis of Chinese listed companies (2012–2022). Our findings reveal that both internal compliance willingness and stricter extraterritorial ESG standards independently and jointly enhance corporate ESG performance. Importantly, cross-border regulatory spillovers exert a greater impact on firms already inclined towards compliance. These insights enrich regulatory compliance theory by underscoring the conditional nature of cross-border regulatory spillover effects and emphasizing the critical moderating role played by corporate behavioural factors. Our study provides important insights for regulators and firms aiming to optimize ESG compliance strategies in cross-border regulatory contexts.