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ESG rating disagreement and dynamic capital structure adjustment

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  • Yang, Yifan
  • Deng, Yi

Abstract

This paper investigates the impact of ESG rating disagreement on the speed of corporate capital structure adjustment. Our findings reveal that a one standard deviation increase in ESG rating disagreement leads to a 7.8 % reduction in the average rate of capital structure adjustment. This hindering effect is particularly pronounced in companies with downward deviations from their target capital structure. The analysis identifies financing constraints, financial resource allocation efficiency, and investor confidence are the main mechanisms that reduce the speed of adjustment. Furthermore, higher ESG performance would help reduce the dampening effect of ESG rating disagreement on the speed of adjustment. According to different rating agency sources, we also find that the average domestic ESG disagreement is a greater impediment to the speed of adjustment. Finally, improving the quality of corporate information disclosure effectively reduces this negative impact.

Suggested Citation

  • Yang, Yifan & Deng, Yi, 2025. "ESG rating disagreement and dynamic capital structure adjustment," Pacific-Basin Finance Journal, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:pacfin:v:93:y:2025:i:c:s0927538x25001817
    DOI: 10.1016/j.pacfin.2025.102844
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    1. He, Ye & Pan, Yuetong & Shan, Tao & Zhou, Yanyu, 2025. "ESG rating disagreement and the cost of equity financing," International Review of Financial Analysis, Elsevier, vol. 107(C).

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