The Impact of ESG Rating Disagreement on Stock Mispricing: Evidence from China

Different ESG rating agencies often have significant differences in their ratings for the same company, and how these discrepancies affect the short- and long-term valuation of stock prices remains understudied. Based on a sample of Chinese listed companies from 2015 to 2022, this paper utilizes a two-way fixed-effects model in order to explore the impact of ESG rating disagreement on stock price mispricing.The results show that: (1) ESG rating disagreement can influence stock mispricing, leading to overvaluation in the cross-sectional dimension and undervaluation in the longitudinal time dimension, this conclusion holds after a series of robustness tests; (2) Mechanism tests indicate that investor sentiment, information disclosure quality, and executives’ environmental awareness significantly moderate the relationship between ESG rating disagreement and stock mispricing; (3) Further analysis reveals that ESG rating disagreement not only affects stock mispricing but also significantly increase the vulnerability of a company’s stock price. This paper enriches the research on the economic consequences of ESG rating disagreement from the perspective of stock mispricing and provides useful recommendations for policymakers, regulators, and market participants.