Institutional Discrepancies and the Sustainability of ESG Ratings: Evidence from Market Pricing Efficiency

Abstract

ESG ratings have progressively emerged as a crucial reference for investors in devising investment strategies. However, discrepancies in rating outcomes exist among various rating agencies, stemming from divergent standards. This study delves into the impact of these inter-agency discrepancies on the sustainability of ESG ratings through the lens of market pricing efficiency. The investigation reveals that ESG ratings can ameliorate stock mispricing by alleviating information asymmetry within the capital market and curtailing irrational investor behavior. Nonetheless, these discrepancies undermine the sustainability of ESG ratings and diminish their corrective influence on stock mispricing. Further inquiry identifies that the attenuation effect originates from the suboptimal quality of corporate ESG information disclosure, attributable to a deficiency in external oversight, culminating in an information confusion effect induced by these discrepancies. This research endeavors to offer policy recommendations to regulatory authorities aimed at standardizing corporate ESG information disclosure practices and ESG rating standards, thereby enhancing the sustainability of ratings and the pricing efficiency of the capital market.