Why do CSR ratings of firms diverge in China? The role of CSR information cues and non-CSR information

As third-party ratings of firms’ corporate social responsibility (CSR) have proliferated, so have concerns about the lack of convergence (divergence) in CSR ratings of the same firms. This study investigates contributing factors to divergence in the CSR ratings issued by RKS and Hexun, the two dominant third-party CSR rating agencies in China, and the implications of such divergence. Using a longitudinal sample of 1414 CSR reports published by 387 Chinese public firms during the 2010–2015 period, we investigated whether CSR rating outcomes are influenced by CSR report information cues (report comprehensiveness and report content modifications) and non-CSR information (firms’ media coverage, auditing credibility, market risk, and industry complexity). CSR report comprehensiveness is associated with higher RKS and Hexun CSR ratings, however, media coverage and auditing credibility strengthens this relationship for RKS ratings. CSR report content modification resulted in higher RKS ratings only for firms with low market risk and in high complexity industries, while CSR report content modification resulted in higher Hexun ratings for firms in low complexity industries. Surprisingly, we found greater divergence in RKS and Hexun CSR ratings is associated with increased accuracy of analysts’ forecasts of firms’ future financial performance in China. We discuss the implications of study findings for the use of CSR ratings by analysts, investors and researchers, as well as firms’ strategic management of CSR reporting.