Do ESG rating changes matter? Evidence from Chinese stock market

Dianhao Liu and Jun Zhou

Global Finance Journal, 2025, vol. 67, issue C

Abstract: Investors will change their trading behavior in response to ESG rating changes, which in turn influence stock returns. In this paper, we examine the impact of ESG rating changes on stock returns in Chinese stock market. We find that ESG rating upgrades (downgrades) lead to higher (lower) short-term stock returns. A long-short portfolio constructed from upgraded firms versus downgraded firms generates monthly abnormal returns of 1.80 % on average. The main driver is institutional investors' buying (selling) shares of companies with upgraded (downgraded) ESG ratings. The disagreement about ESG rating changes can undermine this impact.

Keywords: ESG rating; Sustainable investing; ESG investing; Stock returns (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:67:y:2025:i:c:s1044028325001073

DOI: 10.1016/j.gfj.2025.101180

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