Corporate sustainable development: ESG rating divergence and stock liquidity in China

In the process of allocating capital, investors are increasingly considering environmental, social, and governance (ESG) ratings and green development. To investigate the effect of differences in agencies’ ESG ratings on stock liquidity, we examine data from A-share firms listed on the Shanghai and Shenzhen Stock Exchanges between 2015 and 2022. We find an association between ESG rating divergence and declines in stock liquidity; however, analyst and media attention mitigate this association. Our cross-sectional analysis reveals that stock liquidity at non-state-owned enterprises and less labor-intensive businesses is more likely to suffer the negative impact of ESG rating divergence. Our study adds to the literature on the relationship between differences in ESG ratings between ratings agencies and stock liquidity, offering valuable insights and suggestions for optimizing the ESG rating system and boosting stock market vitality.