ESG Rating Divergence and Corporate Business Risk
Dan Wang, Shilong Liu, Feng Zhan, Bing Zhou, Bin Ye
Keywords:
ESG rating, corporate business risk, financing constraints, investor confidence, corporate reputation
Abstract:
Focusing on China’s publicly listed companies from 2015 to 2022, we analyze how ESG rating divergence (ESGD) affects corporate business risk. We found a significant positive relationship between ESGD and corporate business risk. The rating divergence increases corporate business risk by exacerbating corporate financing constraints, demising investor confidence, and harming corporate reputation. We further investigate the differential impact of different degrees of ESGD on corporate business risk and reveal a double-threshold effect - when enterprises’ ESGD is between the two threshold levels, the impact is less strong. Further heterogeneity analysis finds that the impact of ESGD on business risk is smaller in SOEs and for enterprises with timely accounting information disclosure, in organizations with good ESG performance and audited by Big 4 accounting firms. Our findings suggest that ESGD can weaken a firm's market competitiveness. Moreover, our study has important policy and practice implications for companies, investors, and regulatory agencies and enhances our understanding of sustainability-related firms’ competitiveness.
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 ESG Rating Divergence and Corporate Business Risk [PDF file] [Filesize: 716.87 KB]
 10.7441/joc.2025.02.10
Wang, D., Liu, S., Zhan, F., Zhou, B., & Ye, B. (2025). ESG rating divergence and corporate business risk. Journal of Competitiveness, 17(2). https://doi.org/10.7441/joc.2025.02.10
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