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ESG rating, rating divergence and investment efficiency: International evidence

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  • Lin, Yu-En
  • Teng, Shi
  • Yu, Bo
  • Lam, Keith S.K.

Abstract

This study investigates the relation between ESG ratings and firm investment efficiency and the moderate effect of ESG rating divergence on the relation. Using a sample of firms from 43 countries for the period between 2010 and 2022, we document a significantly positive relation between ESG ratings and firm investment efficiency and a significant negative moderate effect of ESG rating divergence on the positive relation. We also find four firm-level transmission channels-financial constraints, cash flows, opacity, and transparency-affect the ESG and investment inefficiency relation. In addition, our results indicate that the positive relation and the negative moderate effect can be explained by firms’ agency costs. The results hold in endogeneity and robustness tests.

Suggested Citation

  • Lin, Yu-En & Teng, Shi & Yu, Bo & Lam, Keith S.K., 2025. "ESG rating, rating divergence and investment efficiency: International evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 100(C).
    • Handle: RePEc:eee:quaeco:v:100:y:2025:i:c:s106297692500016x
    DOI: 10.1016/j.qref.2025.101975
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    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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