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The duality of ESG: Impact of ratings and disagreement on stock crash risk in China

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  • Luo, Deqing
  • Yan, Jingzhou
  • Yan, Qianhui

Abstract

This study scrutinizes the effects of Environmental, Social, and Governance (ESG) and ESG disagreement on the stock price crash risk among Chinese listed firms. Shifting the focus from mere ESG ratings, the research emphasizes the effect of ESG disagreement across various rating agencies. Our results confirm that higher ESG ratings contribute to a diminished likelihood of stock price crash risk, while the salutary impact is diminished by the prevalent ESG disagreement among rating agencies. Additionally, subgroup analyses reveal heterogeneity, with the moderating effects of ESG disagreement notably pronounced in State-Owned Enterprises (SOEs) than the non-SOEs. These findings accentuate the imperative for rating agencies to harmonize their ESG evaluating methodologies and call for normalization in firms’ ESG disclosure practices, thereby minimizing stock price crash risk and fortifying financial market stability.

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  • Luo, Deqing & Yan, Jingzhou & Yan, Qianhui, 2023. "The duality of ESG: Impact of ratings and disagreement on stock crash risk in China," Finance Research Letters, Elsevier, vol. 58(PB).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pb:s1544612323008516
    DOI: 10.1016/j.frl.2023.104479
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    7. Li, Li & Zhang, Du & Li, Rongrong, 2024. "ESG rating disagreement and corporate innovation: Evidence from China," Finance Research Letters, Elsevier, vol. 62(PA).
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    9. Zou, Jin & Yan, Jingzhou & Deng, Guoying, 2023. "ESG rating confusion and bond spreads," Economic Modelling, Elsevier, vol. 129(C).
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    More about this item

    Keywords

    ESG; ESG disagreement; Stock crash risk; Sustainable investment;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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