The Impact of ESG Rating Divergence on Excess Cash Holdings: Evidence From China A‐Share Listed Firms

ABSTRACT This paper investigates the relationship between ESG rating divergence and corporate excess cash holdings, employing a sample of Chinese A‐share listed companies from 2015 to 2021. Our findings reveal a significant positive relationship between ESG rating divergence and firms' excess cash holdings, a conclusion robust to various sensitivity analyses. Heterogeneity analyses further demonstrate that the effect of ESG rating divergence on excess cash holdings is amplified under conditions of cross‐ownership, heightened media scrutiny, and greater corporate financing constraints. Moreover, our study uncovers several mechanisms through which ESG rating divergence influences excess cash holdings, including exacerbating information asymmetry, amplifying environmental uncertainty, and heightening operational risk. This research contributes not only to a deeper understanding of the economic ramifications of ESG rating divergence and its influence on excess cash holdings but also offers valuable insights into the cash management decisions of listed companies, fostering sustainable enterprise development.