Does ESG rating divergence affect the cost of corporate debt?

Xinyue Zhang, Yuan George Shan, Yuming Zhang and Chao Xing

Accounting and Finance, 2025, vol. 65, issue 3, 2244-2280

Abstract: Drawing on a sample of Chinese listed firms, we find that environmental, social, and governance (ESG) rating divergence increases the cost of debt through increased information asymmetry and corporate risks, particularly for non‐state‐owned enterprises and firms with weaker contractual environments or less collateral. In addition, we find that ESG divergence and analyst forecast bias exhibit a substitutive relationship in debt costs, and standardising ESG disclosure can mitigate the adverse impact of ESG rating divergence on the cost of debt. This study extends the research on ESG rating divergence and the cost of debt, and provides empirical support for developing a standardised ESG rating system.

Date: 2025
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https://doi.org/10.1111/acfi.13400

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