Effect of ESG rating disagreement on stock price informativeness: Empirical evidence from China's capital market

Kexin Hu, Xingyi Li and Zhongfei Li

International Review of Financial Analysis, 2024, vol. 96, issue PB

Abstract: We assess the level of environmental, social, and governance (ESG) rating disagreement among Chinese listed companies using ESG data from eight ESG rating providers and examine the impact of ESG rating disagreement on stock price informativeness. Our results indicate a significant and positive correlation between ESG rating disagreement and stock price synchronicity. This suggests that different ESG ratings impede the integration of company-specific details into stock prices, thereby reducing the stock price's informativeness. The opacity of corporate information and agency costs can both be used to interpret this result. We also explore the transmission channels through which ESG rating disagreement affects stock price informativeness. Our findings reveal that such disagreement lowers the quality of analysts' predictions and impedes investors' access to information, affecting the informativeness of stock prices. Furthermore, we observe that ESG rating disagreement has a greater impact on stock price synchronicity for companies with high ESG ratings and those operating in highly competitive industries. Increased media coverage would mitigate the effect of ESG rating disagreement on stock price synchronicity. Overall, our findings contribute to the literature on ESG rating disagreement and demonstrate the critical role of ESG rating disagreement in the informativeness of stock prices.

Keywords: ESG rating disagreement; Stock Price synchronicity; Firm transparency; Agency costs (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924005830

DOI: 10.1016/j.irfa.2024.103651

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