ESG ratings and firm performance: The moderating role of ESG rating disagreement

We examine the impact of ESG rating disagreement on the relationship between ESG ratings and firm performance. We find that ESG ratings are negatively associated with firm performance. Moreover, ESG rating disagreement positively moderates the relationship between ESG ratings and firm performance, weakening the negative impact of ESG ratings on firm performance. Furthermore, additional tests suggest that ESG rating disagreement plays a moderating role only for firms with better disclosure quality and worse corporate governance, greater environmental munificence and dynamism, smaller size, and greater social capital. Overall, our findings support agency theory and the resource-based view, highlighting the importance of rating consistency and the role of high ESG rating scores as an intangible resource that indicates agency problems. However, ESG rating disagreement also serves a governance function.