ESG Rating Disagreement and Stock Price Crash Risk: Evidence from Chinese Listed Companies

Abstract

With growing ESG awareness and the push for sustainable development, ESG ratings have garnered increasing attention from academia and practice. However, the absence of standardized assessment criteria has resulted in considerable inconsistencies across ESG rating agencies. This study investigates the impact of ESG rating disparities on firms’ vulnerability to stock price crashes, using a dataset of companies publicly traded on the A-share segment of the Chinese stock market. The findings reveal that greater disagreement substantially elevates the probability of stock price crashes. Additional analyses demonstrate that the effect is particularly evident among manufacturing firms, small enterprises, and those located in central and western China. Mechanism tests suggest the impact operates primarily through increased noise trading and higher agency costs.