We investigate whether the European Union’s (EU) corporate sustainability disclosure mandate has had spillover effects on U.S. firms through their EU subsidiaries. The nonfinancial reporting directive (NFRD) mandated large EU public interest entities to disclose their environmental and social matters starting in 2018, enhancing the EU’s sustainability information environment. We find that U.S. firms with EU subsidiaries improve their CSR transparency and performance in the post-period, that is, starting from the year when the first non-financial reporting disclosures were issued by the companies under the NFRD. By focusing on the knowledge transfer channel driving this spillover effect, we find that the effect is more pronounced for U.S. firms with greater exposure to the EU market, particularly when their subsidiaries are larger and operate within the same industry, attracting headquarters’ attention. Overall, this study posits that corporate sustainability reporting regulation can have far-reaching real effects through spillovers via parent-subsidiary relationships.
