ESG rating disagreement and provision of trade credit: Evidence from China

The increasing reliance on ESG ratings has intensified concerns over rating disagreement and its economic consequences. While existing research primarily examines capital market reactions, less is known about how ESG rating disagreement affects firms’ credit decisions. Using panel data of Chinese A-share listed firms from 2015 to 2023, this study investigates the impact of ESG rating disagreement on corporate trade credit provision. Employing panel regressions with firm and year fixed effects, we find that greater ESG rating disagreement significantly reduces trade credit provision, suggesting that ESG information uncertainty has meaningful implications for firms’ liquidity allocation decisions. The results remain robust across a series of robustness tests and endogeneity tests. Mechanism analyses indicate that ESG rating disagreement affects trade credit through both endogenous and exogenous funding channels by increasing earnings volatility, tightening financing constraints, and reducing stock market liquidity. The negative effect is more pronounced among non-state-owned firms, firms with stronger governance structures, and firms operating in less concentrated supply-chain environments. Overall, this study identifies ESG rating disagreement as a distinct informational friction affecting inter-firm financing decisions. The findings contribute to the literature on ESG and trade credit and provide implications for corporate financial management and provide implications for corporate financial management, supply-chain financing, and the standardization of ESG rating systems.