ESG Rating Disagreement and Stock Returns

55 Pages Posted: 10 Aug 2019 Last revised: 30 Jun 2020

See all articles by Rajna Gibson

Rajna Gibson

European Corporate Governance Institute (ECGI); University of Geneva - Geneva Finance Research Institute (GFRI)

Philipp Krueger

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Peter Steffen Schmidt

University of Zurich - Department of Banking and Finance; University of Geneva - Geneva Finance Research Institute (GFRI)

Date Written: December 22, 2019

Abstract

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

Suggested Citation

Gibson, Rajna and Krueger, Philipp and Schmidt, Peter Steffen, ESG Rating Disagreement and Stock Returns (December 22, 2019). Swiss Finance Institute Research Paper No. 19-67, Available at SSRN: https://ssrn.com/abstract=3433728 or http://dx.doi.org/10.2139/ssrn.3433728

Rajna Gibson

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland
+41.22.379.89.83 (Phone)

Philipp Krueger

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland

Swiss Finance Institute ( email )

Switzerland

Peter Steffen Schmidt (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland

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