ESG rating disagreement and idiosyncratic return volatility: Evidence from China

Xiangqiang Liu, Qingqing Yang, Kai Wei and Peng-Fei Dai

Research in International Business and Finance, 2024, vol. 70, issue PB

Abstract: Following the increasing importance of sustainable development and the popularity of ESG investing activities, ESG ratings have grown to be crucial references for investors’ decision-making. However, there are substantial disagreements among different rating agencies. This study examines the impact of ESG rating disagreement on idiosyncratic return volatility using data from five prominent rating agencies: SynTao Green Finance, Huazheng, Hexun, Bloomberg, and Rankins ESG Ratings. The findings suggest that ESG rating disagreement will increase idiosyncratic return volatility. This relation is driven by investor attention and noise trading. Heterogeneity tests reveal that the higher analyst coverage and greater analyst forecast bias, the more pronounced the impact of ESG rating disagreement on idiosyncratic return volatility. While firms with foreign investors and more institutional investors can alleviate the interference.

Keywords: ESG rating disagreement; Idiosyncratic return volatility; Information asymmetry; Noise trading (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:70:y:2024:i:pb:s0275531924001612

DOI: 10.1016/j.ribaf.2024.102368

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