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Can ESG ratings mitigate managerial myopia? Evidence from Chinese listed companies

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  • Zhang, Jiawei
  • Li, Yuan
  • Xu, Hanwen
  • Ding, Yi

Abstract

Managerial myopia has an important impact on the future development of companies and the legitimate rights of stakeholders; however, the impact of ESG ratings on managerial myopia is unclear. Based on the ESG rating data of Chinese listed companies from 2009 to 2021, we constructed indicators of managerial myopia through text analysis and found that ESG ratings can significantly inhibit managerial myopia. The results of the mechanism tests show that ESG ratings inhibit managerial myopia by alleviating financing constraints, improving accounting information quality, and enhancing analysts' attention. The results of heterogeneity tests show that a higher degree of market competition indicates a more significant inhibitory effect of ESG ratings on managerial myopia. The economic consequences test revealed that ESG ratings can improve company performance by inhibiting managerial myopia. These conclusions provide important empirical evidence and suggestions for emerging market countries to use ESG ratings effectively to inhibit managerial myopia.

Suggested Citation

  • Zhang, Jiawei & Li, Yuan & Xu, Hanwen & Ding, Yi, 2023. "Can ESG ratings mitigate managerial myopia? Evidence from Chinese listed companies," International Review of Financial Analysis, Elsevier, vol. 90(C).
    • Handle: RePEc:eee:finana:v:90:y:2023:i:c:s1057521923003940
    DOI: 10.1016/j.irfa.2023.102878
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