Does Rating Consistency Matter? A Micro‐Level Study on the Impact of Corporate ESG Rating Divergence on Equity Financing Costs

Jun Li, Yujie Hou, Changchun Tan and Longyan Han

Accounting and Finance, 2025, vol. 65, issue 4, 3966-3982

Abstract: The influence of ESG rating divergence on corporate finance is receiving increasing scholarly attention as ESG concerns become more prominent. However, few studies have systematically examined how ESG rating discrepancies affect corporate equity financing costs. This study addresses this gap by analysing data from Chinese A‐share listed firms between 2015 and 2022 to explore the impact of ESG rating divergence on equity financing costs and its underlying mechanisms. The results reveal that: (1) ESG rating divergence significantly raises equity financing costs, suggesting that capital markets impose a risk premium on inconsistent ESG information; (2) this effect is more pronounced in firms with greater external analyst forecast dispersion and more severe internal agency problems; (3) firms that are non‐state‐owned, face significant financial constraints, or have poor information quality are particularly vulnerable to this effect. The study contributes to the understanding of the economic consequences of ESG rating divergence and offers policy implications for regulators, institutions, investors and firms in navigating ESG‐related challenges.

Date: 2025
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