ESG rating, rating divergence and investment efficiency: International evidence

Yu-En Lin, Shi Teng, Bo Yu and Keith S.K. Lam

The Quarterly Review of Economics and Finance, 2025, vol. 100, issue C

Abstract: This study investigates the relation between ESG ratings and firm investment efficiency and the moderate effect of ESG rating divergence on the relation. Using a sample of firms from 43 countries for the period between 2010 and 2022, we document a significantly positive relation between ESG ratings and firm investment efficiency and a significant negative moderate effect of ESG rating divergence on the positive relation. We also find four firm-level transmission channels-financial constraints, cash flows, opacity, and transparency-affect the ESG and investment inefficiency relation. In addition, our results indicate that the positive relation and the negative moderate effect can be explained by firms’ agency costs. The results hold in endogeneity and robustness tests.

Keywords: ESG ratings; Investment efficiency; ESG rating divergence (search for similar items in EconPapers)
JEL-codes: G34 M14 O16 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:100:y:2025:i:c:s106297692500016x

DOI: 10.1016/j.qref.2025.101975

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