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ESG Rating Divergence and Stock Price Crash Risk

Author

Listed:
  • Chuting Zhang

    (College of Management, Nanjing University of Posts and Telecommunications, Nanjing 210003, China)

  • Wei-Ling Hsu

    (School of Civil Engineering, Jiaying University, Meizhou 514015, China)

Abstract

ESG has emerged as a key non-financial indicator, drawing significant investor focus. Disparities in ESG ratings may skew investor perceptions, potentially endangering stock values and financial market stability. This paper examines the link between ESG rating divergences and stock price crash risk, drawing on data from six Chinese and global ESG rating agencies. Focusing on Shanghai and Shenzhen A-share listed firms, it analyzes information from 2015 to 2022 within the theoretical contexts of information asymmetry and external monitoring. This study finds that ESG rating divergence markedly elevates stock price crash risk, a relationship that persists through a series of robustness checks. Specifically, the mechanisms operate through two key pathways: increased reputational damage risk due to information asymmetry and reduced external monitoring due to weakened external governance. The results of the heterogeneity analysis indicate that ESG rating divergence exacerbates stock price crash risk more significantly for non-state-owned firms, firms with low levels of marketization, and firms in high-pollution industries. This study provides clear actionable strategic paths and policy intervention points for investors to avoid risks, firms to optimize management, and regulators to formulate policies.

Suggested Citation

  • Chuting Zhang & Wei-Ling Hsu, 2025. "ESG Rating Divergence and Stock Price Crash Risk," IJFS, MDPI, vol. 13(3), pages 1-23, August.
    • Handle: RePEc:gam:jijfss:v:13:y:2025:i:3:p:147-:d:1727332
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    References listed on IDEAS

    as
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    5. Wang, Jianli & Wang, Shaolin & Dong, Minghua & Wang, Hongxia, 2024. "ESG rating disagreement and stock returns: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 91(C).
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    Full references (including those not matched with items on IDEAS)

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