ESG Rating Disagreement and Stock Returns
55 Pages Posted: 10 Aug 2019 Last revised: 30 Jun 2020
Date Written: December 22, 2019
Using a sample of S&P 500 firms between 2013 and 2017, we study the impact of ESG rating disagreement on stock returns. We conjecture that for disagreement about environmental ratings, a risk-based explanation induces a positive relationship between rating disagreement and stock returns. In contrast, we hypothesize that for disagreement about the social and governance ratings, the impact on stock returns is negative and is driven by mispricing and the rating providers’ location in civil or common law jurisdictions. Our empirical findings support these hypotheses.
Keywords: Disagreement, non-financial information, ESG ratings dispersion, heterogeneous beliefs, stock returns, legal origins, sustainable finance
JEL Classification: G12, G24, Q01
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