Impact of ESG ratings on information efficiency in capital market for chinese-listed companies

Abstract

The relationship between Environmental, Social, and Governance (ESG) ratings and information efficiency in capital markets is a topic of discussion, especially with China's carbon peak and carbon neutrality goals and its capital market opening. After defining information efficiency as Northbound Capital Shareholding Preferences (NCSP), stock mispricing, and stock price crash risk, this study examines the impact of ESG ratings on information efficiency for Chinese listed companies by establishing variables of information asymmetry, Technical Achievement Index (TAI), and dynamic capabilities to investigate the mediating and moderated mediation effects. This study also investigates the impact of the COVID-19 pandemic, accounting conservatism, and property rights on information efficiency and ESG ratings for Chinese publicly traded companies. The study is the first to combine these factors into a framework to analyze how ESG ratings impact information efficiency in the Chinese capital market for listed companies. Entropy Weight Method (EWM) for calculating TAI, Minimum Bayes Factor (MBF) for robustness testing by using data from 2010 to 2021 as the study sample and drawing the appropriate findings. Results show that investors view ESG ratings favorably: 1) With higher ESG ratings being correlated with higher NCSP 2) The association between ESG ratings and information asymmetry is strengthened by TAI 3) Dynamic capabilities play a moderating role in the relationship between ESG ratings and information asymmetry 4) Higher ESG ratings are associated with lower levels of stock mispricing and a lower risk of a stock price crash 5) The influence of ESG ratings on the stock crash risk is moderated by information asymmetry. According to the extensible study, the nature of various property rights, the COVID-19 period, and accounting conservatism all have different implications. This study has implications for stakeholders, including publicly traded companies, governmental agencies, and investors. It also identifies trends in ESG rating research, including research on motivations and economic impact, ESG disclosures and ratings, and a refocusing of ESG rating research direction. These trends have important implications for understanding and improving ESG ratings, which are increasingly important for measuring the sustainability and social responsibility of organizations.