The double-edged effects of the ESG rating on analyst forecast performance

Lei Wang, Yifan Sha, Yue Li and Tongyu Wang

International Review of Economics & Finance, 2025, vol. 103, issue C

Abstract: As information intermediaries, financial analysts play an important role in enhancing market efficiency by synthesizing and disseminating information. The emergence of ESG rating provides analysts with novel, non-financial information and affects their forecast performance. We investigate the impact of the introduction of ESG rating(s) on analysts’ forecasts in China. Evidence suggests that the initial launch of ESG rating significantly helps the forecast and conveys incremental information; on the other edge, this benefit diminishes as more rating agencies enter the market, and the accuracy of analyst forecasts is weakened by the divergence among agencies. Additionally, the disagreement among ratings causes the poor performance of analysts, because ESG divergence distracts analysts’ attention and increases the cost of information acquisition.

Keywords: ESG rating; Analysts forecast performance; Double-edged effects (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:103:y:2025:i:c:s1059056025007105

DOI: 10.1016/j.iref.2025.104547

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