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Is disagreement beneficial for market efficiency? Evidence from ESG ratings

Author

Listed:
  • Yin, Libo
  • Zhu, Xiaoye
  • Su, Zhi
  • Guo, Hongliang

Abstract

ESG rating disagreement refers to discrepancies in ESG performance ratings assigned to a firm by different rating agencies. This study investigates how ESG rating disagreement impacts firm pricing efficiency. These findings demonstrate that ESG rating disagreement contributes to promoting firm pricing efficiency. This effect is especially noticeable during periods of decreased market sentiment, volatility, turnover, and increased liquidity and among firms with specific characteristics, including large market capitalization, value orientation, higher institutional ownership, and superior ESG ratings. The facilitative effect of ESG rating disagreement stems from the diverse information provided by ESG rating agencies, which is more effectively incorporated into stock prices because of the enhanced learning effect of investors. This study is important for achieving a more comprehensive and objective understanding of ESG rating disagreement in financial markets.

Suggested Citation

  • Yin, Libo & Zhu, Xiaoye & Su, Zhi & Guo, Hongliang, 2025. "Is disagreement beneficial for market efficiency? Evidence from ESG ratings," Journal of International Money and Finance, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:jimfin:v:154:y:2025:i:c:s0261560625000579
    DOI: 10.1016/j.jimonfin.2025.103322
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