Cross-border regulatory enforcement and firms’ asymmetric cost behaviour

Exploiting the staggered entrance of countries into Multilateral Memorandum of Understanding (MMoU), this paper examines the causal effect of cross-border regulatory enforcement capacity on cross-listed firms’ resource-adjustment decisions. We argue that strengthening cross-border regulatory enforcement motivates cross-listed firms to enhance corporate governance, and thus the MMoU would reduce the degree of asymmetric cost behaviour therein. We test our prediction using a sample of U.S. listed foreign firms from 41 countries during 2000-2020 and find a negative impact of MMoU on firms’ cost stickiness behaviour. Moreover, we document that the negative effect is amplified in environments with higher agency conflicts, namely for firms (1) with poorer information environment, (2) from countries with weaker institutions, and (3) from countries with high-secrecy culture. Overall, our study demonstrates the effectiveness of cross-border institutional efforts on shaping managers’ opportunistic behaviour.