ESG Rating Disagreement and the Cost of Capital : Evidence from Chinese Listed Firms = ESG 등급 불일치가 자본비용에 미치는 영향에 관한 연구 : 중국 상장기업을 중심으로

다국어 초록 (Multilingual Abstract)

Environmental, social, and governance （ESG） research has attracted growing academic and practical attention, as corporate ESG performance is linked to enhanced reputation, improved risk management, and better access to capital. However, differences in rating methodologies, data sources, and evaluation criteria have led to ESG rating disagreement, creating uncertainty and additional risk for firms and hindering their capital market performance. This study examines the impact of ESG rating disagreement on the cost of capital for Chinese A-share listed firms from 2015 to 2022. Equity financing cost is measured using the PEG model and debt financing cost as financial expenses over total debt, while ESG rating disagreement is proxied by the standard deviation of ratings across agencies. We find that greater ESG rating disagreement significantly increases both debt and equity financing costs. These results remain robust to alternative measures of disagreement （e.g., rating range） and financing costs （e.g., interest expenses/total debt, OJ model）. To address endogeneity, we use the ratio of foreign to domestic rating agencies as an instrumental variable, capturing exogenous differences in methodologies and perspectives. Two-stage least squares （2SLS） regression confirms a causal positive effect of ESG rating disagreement on both debt and equity costs. Heterogeneity analysis shows that the cost-increasing effect is concentrated in non–state-owned, smaller, and eastern-region firms, while largely insignificant for state-owned, large, and central– western firms in debt markets. For heavily polluting enterprises, ESG disagreement raises equity costs more strongly, whereas its impact on debt costs appears mainly in non–polluting firms. Equity investors penalize ESG divergence across all regions without significant regional differences. Mechanism tests show that greater information transparency mitigates the cost-increasing effect of ESG disagreement-especially for equity-while financial constraints and digital transformation amplify its impact on debt but not on equity. Finally, ESG disagreement raises both debt and equity costs but more strongly affects equity, prompting firms to shift toward debt financing when ESG ratings diverge. This study highlights the economic consequences of ESG rating inconsistency in an emerging market and underscores the need to improve ESG disclosure quality and rating comparability. For policymakers, promoting unified ESG reporting standards and third-party assurance can reduce rating divergence and financing frictions. Future research could explore how regulatory reforms, disclosure frameworks, or data analytics influence ESG rating convergence and its impact on capital costs.

목차 (Table of Contents)

• I. Introduction 1
• 1.1. Research Background and Research Questions 1
• 1.1.1. Research background 1
• 1.1.2. Research questions 4
• 1.2. Research Contents and Framework 6
• 1.2.1. Research contents 6
• 1.2.2. Research framework 9
• 1.3. Significance and Contribution 10
• 1.3.1. Significance of the research 10
• 1.3.2. Contribution 12
• 1.4. Research Methods and Data 15
• 1.4.1. Research methods 15
• 1.4.2. Research data 16
• 1.5. Structure of the Paper 17
• II. Literature Review 20
• 2.1. Recent development in the ESG research 20
• 2.2. The concept and reason of ESG disagreement 24
• 2.3. The consequence of ESG disagreement 28
• 2.4. The affecting factors of cost of capital 31
• 2.5. ESG disagreement and cost of debt 35
• 2.6. ESG disagreement and cost of equity 38
• 2.7. The moderating effects 42
• III. Concepts, Theoretical Basis and Hypothesis Development 48
• 3.1. Conceptual definition 49
• 3.1.1. ESG disagreement 49
• 3.1.2. Cost of capital 50
• 3.1.3. Digitalization 52
• 3.1.4. Financing constraints 52
• 3.1.5. Information transparency 54
• 3.2. Theoretical background 54
• 3.2.1. Information asymmetry and the cost of capital 55
• 3.2.2. Ambiguity aversion and the pricing of uncertainty 56
• 3.2.3. Signaling and reputation effects 57
• 3.2.4. Institutional theory and market legitimacy 58
• 3.3. Hypothesis development 60
• 3.3.1. ESG rating disagreement and the cost of debt 60
• 3.3.2. ESG rating disagreement and the cost of equity 62
• 3.3.3. The moderating effects of information transparency 64
• 3.3.4. The moderating effects of financial constraints 67
• 3.3.5. The moderating effects of digitalization 69
• 3.3.6. Summary of the hypothesis 71
• IV. Research Design 74
• 4.1. Data and sample 75
• 4.2. Variables 76
• 4.2.1. Dependent variables 76
• 4.2.2. Explanatory variable 79
• 4.2.3. Moderating variables 83
• 4.2.4. Control variables 86
• 4.3. Descriptive statistics 90
• 4.4. Recent development of ESG and ESG disagreement 93
• 4.5. Model construction 103
• 4.6. Endogeneity and instrumental variable 105
• 4.7. Moderation effect model 109
• 4.8. Model specification test 110
• V. Results of Empirical Analysis 116
• 5.1. ESG disagreement and cost of capital baseline results 116
• 5.1.1. Cost of debt 117
• 5.1.2. Cost of equity 122
• 5.2. Robustness check 127
• 5.2.1. Alternative independent variables 127
• 5.2.2. Alternative dependent variables 135
• 5.3. Endogeneity and 2SLS results 144
• 5.4. Heterogeneity analysis 151
• 5.4.1. Enterprise ownership heterogeneity 152
• 5.4.2. Polluting enterprise heterogeneity 159
• 5.4.3. Firm size heterogeneity 167
• 5.4.4. Regional heterogeneity 175
• 5.5. Mechanism analysis 183
• 5.5.1. The role of information transparency 183
• 5.5.2. The role of financial constraints 190
• 5.5.3. The role of digitalization 196
• 5.5.4. ESG disagreement and capital structure 202
• 5.6. Summary of hypothesis test 208
• VI. Conclusion 211
• 6.1. Summary of the results 211
• 6.2. Implications 215
• 6.3. Limitations and future research 218
• VII. Reference 222