IDEAS home Printed from https://ideas.repec.org/a/wly/ijfiec/v30y2025i4p3744-3760.html

ESG Rating Disagreement and the Quality of Analysts' Forecasts: Information or Noise

Author

Listed:
  • Menghan Li
  • Qi Chen

Abstract

The rise of ESG investment has stimulated the development of ESG ratings, while there is substantial ESG rating disagreement among different rating agencies, which creates a major obstacle to sustainable investment. This study empirically examines the impact of ESG rating disagreement on the quality of analysts' forecasts based on the data of Chinese listed companies from 2015 to 2021. It is found that the ESG rating disagreement significantly improves the quality of analysts' forecasts. Mechanism analysis demonstrates that ESG rating disagreement can enhance the quality of analysts' forecasts by increasing analysts' attention. Heterogeneity analysis reveals that the observed effect is more pronounced in companies with low information quality and those with star analysts. These findings not only objectively assess the impact of ESG rating disagreement, but also emphasise the crucial role of analysts in improving the capital market information environment.

Suggested Citation

  • Menghan Li & Qi Chen, 2025. "ESG Rating Disagreement and the Quality of Analysts' Forecasts: Information or Noise," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 30(4), pages 3744-3760, October.
    • Handle: RePEc:wly:ijfiec:v:30:y:2025:i:4:p:3744-3760
    DOI: 10.1002/ijfe.3089
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/ijfe.3089
    Download Restriction: no
    File URL: https://libkey.io/10.1002/ijfe.3089?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Joos, Peter & Piotroski, Joseph D. & Srinivasan, Suraj, 2016. "Can analysts assess fundamental risk and valuation uncertainty? An empirical analysis of scenario-based value estimates," Journal of Financial Economics, Elsevier, vol. 121(3), pages 645-663.
    2. Samuel Adomako & Mai Dong Tran, 2022. "Stakeholder management, CSR commitment, corporate social performance: The moderating role of uncertainty in CSR regulation," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(5), pages 1414-1423, September.
    3. Umar, Muhammad & Mirza, Nawazish & Rizvi, Syed Kumail Abbas & Naqvi, Bushra, 2022. "ESG scores and target price accuracy: Evidence from sell-side recommendations in BRICS," International Review of Financial Analysis, Elsevier, vol. 84(C).
    4. Shaorou Hu & Ming Liu & Byungcherl Charlie Sohn & Desmond C. Y. Yuen, 2021. "The impact of disclosure quality on analyst forecasts in China," Accounting Forum, Taylor & Francis Journals, vol. 45(4), pages 411-434, October.
    5. Kun Luo & Sirui Wu, 2022. "Corporate sustainability and analysts' earnings forecast accuracy: Evidence from environmental, social and governance ratings," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(5), pages 1465-1481, September.
    6. Higgins, Huong, 2013. "Can securities analysts forecast intangible firms’ earnings?," International Journal of Forecasting, Elsevier, vol. 29(1), pages 155-174.
    7. Bhushan, Ravi, 1989. "Firm characteristics and analyst following," Journal of Accounting and Economics, Elsevier, vol. 11(2-3), pages 255-274, July.
    8. Anne-Kathrin Hinze & Franziska Sump, 2019. "Corporate social responsibility and financial analysts: a review of the literature," Sustainability Accounting, Management and Policy Journal, Emerald Group Publishing Limited, vol. 10(1), pages 183-207, February.
    9. Sakis Kotsantonis & George Serafeim, 2019. "Four Things No One Will Tell You About ESG Data," Journal of Applied Corporate Finance, Morgan Stanley, vol. 31(2), pages 50-58, June.
    10. Tam, Lewis H.K. & Tian, Shaohua, 2023. "Language barriers, corporate site visit, and analyst forecast accuracy," The Quarterly Review of Economics and Finance, Elsevier, vol. 91(C), pages 68-83.
    11. Florian Berg & Julian F Kölbel & Roberto Rigobon, 2022. "Aggregate Confusion: The Divergence of ESG Ratings [Corporate social responsibility and firm risk: theory and empirical evidence]," Review of Finance, European Finance Association, vol. 26(6), pages 1315-1344.
    12. Beckmann, Joscha & Rogmann, Jennifer, 2024. "Determinants and effects of country ESG controversy," Energy Economics, Elsevier, vol. 131(C).
    13. Hu, Xinwen & Hua, Renhai & Liu, Qingfu & Wang, Chuanjie, 2023. "The green fog: Environmental rating disagreement and corporate greenwashing," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).
    14. Tan, Ruipeng & Pan, Lulu, 2023. "ESG rating disagreement, external attention and stock return: Evidence from China," Economics Letters, Elsevier, vol. 231(C).
    15. Simone Pizzi & Fabio Caputo & Elbano de Nuccio, 2024. "Do sustainability reporting standards affect analysts’ forecast accuracy?," Sustainability Accounting, Management and Policy Journal, Emerald Group Publishing Limited, vol. 15(2), pages 330-354, January.
    16. Anne-Kathrin Hinze & Franziska Sump, 2019. "Corporate social responsibility and financial analysts: a review of the literature," Sustainability Accounting, Management and Policy Journal, Emerald Group Publishing Limited, vol. 10(1), pages 183-207, February.
    17. Henock Louis & Amy X. Sun & Oktay Urcan, 2013. "Do Analysts Sacrifice Forecast Accuracy for Informativeness?," Management Science, INFORMS, vol. 59(7), pages 1688-1708, July.
    18. David Hirshleifer & Sonya Seongyeon Lim & Siew Hong Teoh, 2009. "Driven to Distraction: Extraneous Events and Underreaction to Earnings News," Journal of Finance, American Finance Association, vol. 64(5), pages 2289-2325, October.
    19. Coen, Alain & Desfleurs, Aurelie & L'Her, Jean-Francois & Suret, Jean-Marc, 2005. "Another look at factors explaining quality of financial analysts' forecasts: Evidence from the Asian emerging markets," Journal of Multinational Financial Management, Elsevier, vol. 15(4-5), pages 414-434, October.
    20. Healy, Paul M. & Palepu, Krishna G., 2001. "Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 405-440, September.
    21. Michael D. Kimbrough & Xu (Frank) Wang & Sijing Wei & Jiarui (Iris) Zhang, 2024. "Does Voluntary ESG Reporting Resolve Disagreement among ESG Rating Agencies?," European Accounting Review, Taylor & Francis Journals, vol. 33(1), pages 15-47, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wang, Wenjiao & Sun, Ziyuan & Wang, Lan, 2025. "Does ESG rating divergence exacerbate management tone manipulation? − Empirical evidence based on MD&A text," Journal of Business Research, Elsevier, vol. 197(C).
    2. Li, Ge & Cheng, Yuxiang, 2024. "Impact of environmental, social, and governance rating disagreement on real earnings management in Chinese listed companies," Global Finance Journal, Elsevier, vol. 62(C).
    3. Wang, Haijun & Jiao, Shuaipeng & Ge, Chen & Sun, Guanglin, 2024. "Corporate ESG rating divergence and excess stock returns," Energy Economics, Elsevier, vol. 129(C).
    4. Wang, Xi & Xie, Huobao & Li, Jingyuan & Liu, Xiaolong, 2025. "The effect of ESG performance on value creation of strategic alliances," Research in International Business and Finance, Elsevier, vol. 79(C).
    5. Yin, Libo & Zhu, Xiaoye & Su, Zhi & Guo, Hongliang, 2025. "Is disagreement beneficial for market efficiency? Evidence from ESG ratings," Journal of International Money and Finance, Elsevier, vol. 154(C).
    6. Zhang, Xinyi & Khurram, Muhammad Usman & Moussa, Faten & Jiang, Yuexiang, 2025. "The role of voluntary environmental and social disclosure in mitigating ESG Rating divergence," Finance Research Letters, Elsevier, vol. 81(C).
    7. Oehler, Andreas & Neuss, Charlotte, 2025. "ESG disclosure vs. ESG ratings: Consistent information value?," International Review of Financial Analysis, Elsevier, vol. 107(C).
    8. Spira, Robin, 2024. "How does ESG rating disagreement influence analyst forecast dispersion?," Junior Management Science (JUMS), Junior Management Science e. V., vol. 9(3), pages 1769-1804.
    9. Zhang, Jinlong & Qi, Fengyu & Wu, Mingyue, 2025. "Market-oriented environmental regulation and ESG rating divergence," Research in International Business and Finance, Elsevier, vol. 79(C).
    10. van Weeren, Michelle & Bluntz, Clarence, 2025. "What makes a rating useable? Shifting epistemic practices in the ESG rating field," Accounting, Organizations and Society, Elsevier, vol. 114(C).
    11. Liu, Xiangqiang & Yang, Qingqing & Wei, Kai & Dai, Peng-Fei, 2024. "ESG rating disagreement and idiosyncratic return volatility: Evidence from China," Research in International Business and Finance, Elsevier, vol. 70(PB).
    12. Minghua Dong & Miaomiao Li & Hongxia Wang & Yuanyuan Pang, 2025. "ESG Disagreement and Stock Price Crash Risk: Evidence from China," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 32(1), pages 267-299, March.
    13. Wang, Lei & Sha, Yifan & Li, Yue & Wang, Tongyu, 2025. "The double-edged effects of the ESG rating on analyst forecast performance," International Review of Economics & Finance, Elsevier, vol. 103(C).
    14. Raimo, Nicola & L'Abate, Vitiana & Vitolla, Filippo & Salvi, Antonio & Petruzzella, Felice, 2026. "Closing the loop on forecasts: Circular economy disclosure via social media platforms and analyst forecast quality," Technology in Society, Elsevier, vol. 84(C).
    15. Liu, Xiangqiang & Peng, Yuling & Li, Qinyang & Wu, Chu-Hua, 2025. "CEO pay structure and ESG rating disagreement," International Review of Financial Analysis, Elsevier, vol. 102(C).
    16. Michele Rubino & Ilaria Mastrorocco & Giovanni Maria Garegnani, 2024. "The influence of market and institutional factors on ESG rating disagreement," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 3916-3926, September.
    17. Ju, Chunhua & Fang, Xusheng & Shen, Zhonghua, 2025. "ESG rating divergence and stock price crash risk," The North American Journal of Economics and Finance, Elsevier, vol. 76(C).
    18. Xue Pang & Carolyn Egri & Carlos Wing-Hung Lo & Ning Liu, 2025. "Why do CSR ratings of firms diverge in China? The role of CSR information cues and non-CSR information," Asia Pacific Journal of Management, Springer, vol. 42(3), pages 1263-1301, September.
    19. Huang, Chongle & Hao, Simin & Ma, Limei, 2025. "The impact of ESG advantages on the economic development of neighboring regions," Energy Economics, Elsevier, vol. 145(C).
    20. Leonardo Fernandez, 2012. "Price Discovery, Investor Distraction and Analyst Recommendations Under Continuous Disclosure Requirements in Australia," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 1-2012, January-A.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:ijfiec:v:30:y:2025:i:4:p:3744-3760. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/1076-9307/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.