Has the divergence in ESG ratings affected institutional shareholding?

Lei Liu, Hanlei Wang, Si Chen and Zhi Chen

Finance Research Letters, 2025, vol. 83, issue C

Abstract: The performance of companies in environmental, social, and governance (ESG) plays a pivotal role in attracting investments. Nevertheless, ESG rating disagreement can undermine their effectiveness as a guiding tool, ultimately influencing the investment strategies of institutional investors. This study investigates the ESG rating disagreement that companies encounter and explores how these discrepancies influence institutional ownership. Drawing on data from Chinese A-share listed firms spanning from 2015 to 2022, along with ESG rating assessments from six prominent rating agencies, our findings reveal that inconsistencies in ESG ratings tend to decrease the proportion of institutional investment. This trend is largely due to the fact that discrepancies in ESG ratings lower the human capital and ROA of firms, thereby diminishing their attractiveness to institutional investors. External supervision can mitigate the detrimental effects of ESG rating disagreement on institutional holdings. Further, the impact of ESG rating disagreement on the proportion of institutional investors also varies according to the nature of corporate property rights and asset size.

Keywords: ESG rating disagreement; Institutional shareholdings; Human capital; ROA; external supervision (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:83:y:2025:i:c:s1544612325009377

DOI: 10.1016/j.frl.2025.107678

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