Why is Corporate Virtue in the Eye of The Beholder? The Case of ESG Ratings
2021/04/08 by Dane M. Christensen, George Serafeim, Anywhere Sikochi · 258 citations
Business, Management and Accounting · #Accounting #Actuarial science #Auditing, Earnings Management, Governance #Business #Corporate Finance and Governance #Corporate Social Responsibility Reporting #Corporate governance #Corporate social responsibility #Credit rating #Econometrics #Economics #Finance #Political science #Public relations #Volatility (finance)
paper · open access · doi:10.2308/tar-2019-0506
published in The Accounting Review 97(1), 147-175 (American Accounting Association)
openalex publication_date 2021/04/08 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/26
Abstract
ABSTRACT Despite the rising use of environmental, social, and governance (ESG) ratings, there is substantial disagreement across rating agencies regarding what rating to give to individual firms. As what drives this disagreement is unclear, we examine whether a firm's ESG disclosure helps explain some of this disagreement. We predict and find that greater ESG disclosure actually leads to greater ESG rating disagreement. These findings hold using firm fixed effects and using a difference-in-differences design with mandatory ESG disclosure shocks. We also find that raters disagree more about ESG outcome metrics than input metrics (policies), and that disclosure appears to amplify disagreement more for outcomes. Last, we examine consequences of ESG disagreement and find that greater ESG disagreement is associated with higher return volatility, larger absolute price movements, and a lower likelihood of issuing external financing. Overall, our findings highlight that ESG disclosure generally exacerbates ESG rating disagreement rather than resolves it. Data Availability: The data used in this study are publicly available from the sources cited in the text. JEL Classifications: G24; M14; M41; Q56.
Citations
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