Study on the Impact of ESG Rating Divergence on the Cost of Capital

Sijia Ma ()
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Sijia Ma: Xi’an International Studies University, School of Economics and Finance

A chapter in Proceedings of the 2025 International Conference on Financial Innovation and Marketing Management (FIMM 2025), 2025, pp 368-382 from Springer

Abstract: Abstract This article empirically studies the relationship between ESG rating disagreements as well as corporate capital costs using Shanghai-Shenzhen A-shares listed firms, which from 2019-2023, with ESG ratings from China Securities Index, Wind, ESG Rating, SynTao Green Finance, FTSE Russell, and Bloomberg. Results show that ESG rating disagreements significantly increase firms’ capital costs through amplified information asymmetry and reduced investor confidence. Heterogeneity analysis reveals this effect is particularly pronounced among non-state-owned enterprises due to weaker institutional credit support, and eastern coastal enterprises facing higher expectation for ESG rating performance in developed markets contrasting to central as well as western regions. Mechanism tests indicate two distinct pathways: ESG ratings divergence will intensify media attention, thereby increasing capital costs, while simultaneously compelling firms to strengthen internal controls, which reduces capital costs through improved risk governance credibility. Based on these conclusions, the study proposes targeted recommendations for enterprises, regulatory authorities, and financial institutions to address the implications of ESG rating divergences.

Keywords: ESG; ESG Rating Divergence; Cost of Capital (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-874-5_45

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DOI: 10.2991/978-94-6463-874-5_45

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