Does cross-listing on the Hong Kong stock exchange affect Chinese firms’ green innovation? New evidence

Green innovation is a costly and risky process that enables firms to improve their energy efficiency and maintain sustainable growth. In this study, we investigate whether cross-listing shares in developed markets encourages firms from developing markets to engage in green innovation. By analyzing a sample of firms that are simultaneously listed on the Chinese A-share market and the Hong Kong Stock Exchange, the study finds that cross-listed firms have more green patent applications, patent grants, and citations than non-cross-listed firms. The transmission mechanisms suggest that cross-listed firms are motivated by foreign investors’ expectations of sustainable growth to engage in green innovation. Furthermore, in developed capital markets, high-quality firms can receive capital at low costs and use it to support valuable green innovation. As a result, cross-listed firms demonstrate better environmental performance after cross-listing, and green innovation products (patents) enable cross-listed firms to improve their financial performance. Overall, we establish a relationship between cross-listing and green innovation and highlight a new factor that leads firms to undertake valuable green innovation.