Does ESG rating disagreement affect management tone manipulation?

Abstract

Environmental, Social, and Governance (ESG) ratings play a pivotal role in bridging listed companies with the capital market. However, significant discrepancies exist among rating agencies' assessments of a company's ESG performance, making it challenging for the market to evaluate a firm's sustainable development capabilities accurately. This causes confusion among investors and increases the pressure on corporate management. Based on ratings data for Chinese A-share listed companies from 2015 to 2022, we empirically examine the impact and underlying mechanism of ESG rating disagreement on management tone manipulation. The study finds that: (1) ESG rating disagreement significantly intensifies the degree of management tone manipulation; (2) ESG rating disagreement increases the market pressure on managers, thus motivating them to intensify the degree of tone manipulation, while the noise effect of ESG rating disagreement provides an opportunity for managers to intensify tone manipulation; and (3) under ESG rating disagreement, management tone manipulation significantly increases the risk of stock price crashes for listed companies. The conclusions of this study have significant practical implications for regulators in standardizing ESG rating criteria and information disclosure by listed companies.