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Does ESG rating divergence exacerbate management tone manipulation? − Empirical evidence based on MD&A text

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  • Wang, Wenjiao
  • Sun, Ziyuan
  • Wang, Lan

Abstract

ESG rating divergence has garnered significant attention, yet research often overlooks the management’s response strategies. Using a sample of Chinese listed firms from 2015 to 2021, this study found that greater environmental, social, and governance (ESG) divergence is associated with more positive tones in the annual report’s Management Discussion and Analysis section. Thus, the management may engage in tone manipulation. Rating discrepancies increase operational risks and information asymmetry, prompting the management to adjust their tone. Applying fraud triangle theory, the study shows that tone manipulation is more likely under high public environmental concern, weak internal controls, and an inadequate legal environment. Additionally, ESG-sensitive firms, those based in Eastern China, those with high ESG ratings, and state-owned enterprises are more likely to adjust their tone in response to rating divergence. These findings underscore the strategic narrative adjustments that firms undertake when faced with inconsistent ESG ratings.

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  • Wang, Wenjiao & Sun, Ziyuan & Wang, Lan, 2025. "Does ESG rating divergence exacerbate management tone manipulation? − Empirical evidence based on MD&A text," Journal of Business Research, Elsevier, vol. 197(C).
    • Handle: RePEc:eee:jbrese:v:197:y:2025:i:c:s0148296325002723
    DOI: 10.1016/j.jbusres.2025.115449
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