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ESG rating disagreement and analyst forecast quality

Author

Listed:
  • Liu, Xiangqiang
  • Dai, Jiajie
  • Dong, Xiaohong
  • Liu, Jia

Abstract

This study examines the effect of ESG rating disagreement on analysts' earning forecast using a sample consisting of ESG ratings of Chinese A-share listed companies from 2015 to 2021 by six rating agencies including RSK, SynTao Green Finance, Hexun, Bloomberg, Huazheng and Wind. We find that greater ESG rating disagreement is linked to increased forecast error and dispersion among analysts. The mechanism test confirms that ESG rating disagreement exacerbates information asymmetry, leading to greater forecast inaccuracies and dispersion. Further analysis reveals that the negative impact of ESG rating disagreement is more pronounced in companies with worse information environments, while experienced and diligent analysts, alongside star analysts, can mitigate such negative effect of rating disagreement. Our findings contribute to the literature on ESG rating disagreement from an analyst's perspective, providing empirical evidence from emerging capital market about the economic consequences of ESG rating disagreement.

Suggested Citation

  • Liu, Xiangqiang & Dai, Jiajie & Dong, Xiaohong & Liu, Jia, 2024. "ESG rating disagreement and analyst forecast quality," International Review of Financial Analysis, Elsevier, vol. 95(PB).
    • Handle: RePEc:eee:finana:v:95:y:2024:i:pb:s1057521924003788
    DOI: 10.1016/j.irfa.2024.103446
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