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A Study of the Impact of Corporate ESG Rating Divergence on Short-Term Lending and Long-Term Investment Behavior

Author(s)

Yuzi Hou, Zhendi Wang

Affiliation(s)

Northeastern University at Qinhuangdao, Qinhuangdao, China

Abstract

In recent years, ESG performance has become an important indicator for assessing corporate sustainability, but the differences in the systems of different rating agencies lead to divergence in the rating results for the same company, which may affect corporate financial decisions. Using a sample of Chinese A-share listed companies from 2015-2023, this paper explores the impact and mechanism of ESG rating divergence on firms' short-term lending and long-term investment behaviors. It is found that ESG rating disagreement significantly exacerbates firms' short-lending and long-investing behaviors, and this phenomenon is more prominent among large-scale firms, firms in the eastern region, and firms with high competitive market positions. The mechanism analysis shows that ESG rating disagreement strengthens firms' tendency to short-term lending and long-term investment through three paths: reputational risk, information asymmetry, and operational risk. Specifically, rating divergence damages corporate reputation and increases financing costs; exacerbates information asymmetry and pushes up the cost of debt monitoring; and amplifies operational risks, forcing firms to rely on short-term debt to maintain liquidity. This study provides an important reference for policy makers to improve the ESG rating system, for firms to optimize their debt structure, and for investors to assess their risks, and it also provides a new theoretical basis for understanding the economic consequences of ESG rating divergence.

Keywords

ESG Rating Divergence; Short-Term Lending and Long-Term Investment; Information Asymmetry; Reputational Risk; Operational Risk

References

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