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 · 18 citations
Business, Management and Accounting · #Corporate Social Responsibility Reporting #Auditing, Earnings Management, Governance #Corporate Finance and Governance
paper · doi:10.2308/tar-2019-0506
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
Cited by
- Pharos-ESG: A Framework for Multimodal Parsing, Contextual Narration, and Hierarchical Labeling of ESG Report
- What influenced the lack of diversity in CSR after the company's losses: evidence from topic modeling
- Quantitative ESG disclosure and divergence of ESG ratings. [europepmc]
- On ESG Portfolio Construction: A Multi-Objective Optimization Approach. [europepmc]
- Is Corporate Social Responsibility investing a free lunch? The relationship between ESG, tail risk, and upside potential of stocks before and during the COVID-19 crisis. [europepmc]
- How Does a Company's ESG Performance Affect the Issuance of an Audit Opinion? The Moderating Role of Auditor Experience. [europepmc]
- The effects of environmental information disclosure on stock price synchronicity in China. [europepmc]
- Which institutional investors can improve the level of corporate ESG information disclosure? [europepmc]
- Opportunities for synthetic data in nature and climate finance. [europepmc]
- Environmental, social, and governance performance, financing constraints, and corporate investment efficiency: Empirical evidence from China. [europepmc]
- ESG rating disagreement and bank loan availability: Evidence from China. [europepmc]
- ESG Disclosure, REIT Debt Financing and Firm Value. [europepmc]
- Green investors and ESG ratings divergence. [europepmc]
- A systems approach to sustainable finance: Actors, influence mechanisms, and potentially virtuous cycles of sustainability. [europepmc]
- Female leadership and ESG rating disagreement: Evidence from China. [europepmc]
- Impact of excessive environmental information disclosure on stock price crash risk. [europepmc]
- From words to action? Linking ESG reports to environmental performance. [europepmc]
- The impact of ESG risks on corporate value [europepmc]
Related