The role of revised securities law on ESG rating divergence: Through the perspective of disclosure quality and internal control

This paper examines the impact of China's 2020 Securities Law reform on the divergence in ESG (Environmental, Social, and Governance) ratings among A-share listed firms from 2015 to 2023. Using a novel, continuous policy intensity variable constructed by interacting the post-reform indicator with firms’ information disclosure assessment scores, we analyze whether and how regulatory reform improves rating consensus. Our results show that the reform reduces ESG rating divergence by approximately 8.6%, as measured by the standard deviation across multiple rating agencies, suggesting that enhanced legal enforcement improves the transparency and interpretability of ESG-related disclosures. Further mechanism analyses reveal that the effect is partially mediated through improved internal control quality and information disclosure effectiveness. Heterogeneity tests demonstrate that the impact is more pronounced among non-state-owned firms, firms with lower institutional ownership, and those operating in non-heavy-polluting industries. These findings contribute to the growing literature on institutional determinants of ESG information quality and underscore the governance value of legal reforms in emerging markets.