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Does ESG rating policy reduce corporate risk-taking? Evidence from China

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  • Wu, Shilei
  • Zhou, Fu-You
  • Si, Deng-Kui
  • Hao, Jiawei

Abstract

This paper investigates the impact of environmental, social, and governance (ESG) ratings on corporate risk-taking using non-financial listed firms from 2010 to 2020 in China. We find a significantly negative correlation between ESG ratings and corporate risk-taking, indicating that higher ESG ratings are associated with reduced corporate risk-taking behavior. The result remains held to address endogeneity concerns and various robustness checks. We identify the channels of reducing information asymmetry, enhancing investment efficiency, and improving trade credit through which ESG rating inhibits corporate risk-taking. Further analysis shows that the negative impact of ESG ratings on corporate risk-taking is more pronounced for firms with lower audit quality, voluntary ESG disclosures, and lower institutional ownership. This paper provides a novel theoretical view of the relationship between ESG ratings and corporate risk-taking.

Suggested Citation

  • Wu, Shilei & Zhou, Fu-You & Si, Deng-Kui & Hao, Jiawei, 2025. "Does ESG rating policy reduce corporate risk-taking? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 90(C).
    • Handle: RePEc:eee:pacfin:v:90:y:2025:i:c:s0927538x24004062
    DOI: 10.1016/j.pacfin.2024.102654
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