ESG rating divergence and stock price crash risk

Chunhua Ju, Xusheng Fang and Zhonghua Shen

The North American Journal of Economics and Finance, 2025, vol. 76, issue C

Abstract: This study aims to explore the impact of ESG rating divergence on firms’ stock price crash risk. Using ESG ratings from six different agencies, we find that a greater divergence in ESG ratings significantly lowers the likelihood of future crash risk. Specifically, the mechanism by which ESG rating divergence reduces crash risk lies in the fact that it triggers more investor attention as well as improves the quality of voluntary corporate disclosure. Further cross-sectional tests reveal that the negative impact of ESG rating divergence on crash risk is more pronounced when managers are more likely to conceal bad news. Finally, we also find that the relationship between the two is moderated by firm size and ownership structure. This paper offers new insights into how ESG rating divergence impacts firms’ capital market performance.

Keywords: ESG rating divergence; Stock price crash risk; Corporate governance (search for similar items in EconPapers)
JEL-codes: G34 M21 M41 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:76:y:2025:i:c:s1062940824002481

DOI: 10.1016/j.najef.2024.102323

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