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ESG rating divergence and stock price crash risk

Author

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  • Ju, Chunhua
  • Fang, Xusheng
  • Shen, Zhonghua

Abstract

This study aims to explore the impact of ESG rating divergence on firms’ stock price crash risk. Using ESG ratings from six different agencies, we find that a greater divergence in ESG ratings significantly lowers the likelihood of future crash risk. Specifically, the mechanism by which ESG rating divergence reduces crash risk lies in the fact that it triggers more investor attention as well as improves the quality of voluntary corporate disclosure. Further cross-sectional tests reveal that the negative impact of ESG rating divergence on crash risk is more pronounced when managers are more likely to conceal bad news. Finally, we also find that the relationship between the two is moderated by firm size and ownership structure. This paper offers new insights into how ESG rating divergence impacts firms’ capital market performance.

Suggested Citation

  • Ju, Chunhua & Fang, Xusheng & Shen, Zhonghua, 2025. "ESG rating divergence and stock price crash risk," The North American Journal of Economics and Finance, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:ecofin:v:76:y:2025:i:c:s1062940824002481
    DOI: 10.1016/j.najef.2024.102323
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    More about this item

    Keywords

    ESG rating divergence; Stock price crash risk; Corporate governance;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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