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ESG rating adjustment disagreement and stock price synchronicity: Evidence from China

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  • Yin, Pengfei
  • Li, Sicheng
  • Yue, Gabriel XG

Abstract

This study investigates the impact of ESG rating adjustment disagreement (ADJDIS) on firms' stock price synchronicity (SPS) using data from Chinese listed firms from 2018 to 2023. Our findings reveal that ADJDIS significantly exacerbates stock price synchronicity. This effect is primarily transmitted through two channels: increased information costs and intensified irrational trading. In the information cost mechanism, we find that ADJDIS's negative impact mainly stems from raising investors' information search costs. When the firm effectively mitigates the search friction through comprehensive ESG disclosure, the impact of ADJDIS is weakened, while the linguistic complexity of the report has no moderating effect. In the irrational trading mechanism, ADJDIS not only has a direct positive effect on stock mispricing but its exacerbating impact on SPS is concentrated in periods of high market investor sentiment and in firms with a higher proportion of retail investors. Furthermore, we find that the adverse effect of ADJDIS on SPS is bounded by ESG investment strategies, concentrating only in firms at the extreme ends of the ESG performance spectrum, and is mitigated by ESG core fund ownership. This study highlights the distinct economic significance of adjustment disagreement and underscores the crucial role of optimizing the information environment in reducing its negative impact.

Suggested Citation

  • Yin, Pengfei & Li, Sicheng & Yue, Gabriel XG, 2026. "ESG rating adjustment disagreement and stock price synchronicity: Evidence from China," Research in International Business and Finance, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:riibaf:v:83:y:2026:i:c:s0275531925005173
    DOI: 10.1016/j.ribaf.2025.103261
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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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