ESG rating uncertainty and institutional investment—evidence from China

Using panel data on China's A-share listed enterprises from 2015 to 2022, this study applies a fixed effects model of the year, industry, and region to empirically test the impact of ESG ratings and ESG rating uncertainty on institutional investment. The results of this study find that: (1) ESG ratings significantly and positively affect institutional investment, but the existence of ESG rating uncertainty significantly and negatively affects institutional investment. Meanwhile, ESG rating uncertainty weakens the influence of ESG ratings on institutional investment. (2) Institutional investors are more sensitive to the ESG rating uncertainty of enterprises that are government-related (state-owned and politic connected), executive-right-expanded, loss-making, non-heavy-polluting, non-high-tech, and in the eastern region. Meanwhile, passive institutional investors are more sensitive to the ESG rating uncertainty. (3) The number of institutional investors, government subsidies, and securities market performance are the channels through which ESG rating uncertainty affects institutional investment.