ESG Rating and Corporate Risk‐Taking

ABSTRACT This paper conducts an in‐depth analysis of the relationship between corporate Environmental, Social, and Governance (ESG) ratings and corporate risk‐taking, exploring the multiple impacts of ESG ratings on corporate behavior in China's A‐share market. The study reveals that a company's ESG performance can influence its risk‐taking behavior through various mechanisms. First, an improvement in ESG ratings helps alleviate information asymmetry, reduce financing costs, and thus decrease the company's risk‐taking. Second, the involvement of institutional investors plays a key role in enhancing corporate ESG performance and the quality of its information disclosure, particularly in companies with low institutional ownership, where the standardization and transparency of information disclosure are lower, making the impact of ESG ratings more significant. Additionally, external audit quality has a significant impact on the quality of ESG information disclosure, with high‐quality audits enhancing the credibility of ESG information, further influencing corporate risk‐taking. Finally, the government should implement policies to support institutional investors' participation in corporate governance, promote the transparency of ESG information disclosure, and enhance ESG rating standardization and optimize the financing environment to improve corporate capital operation efficiency and reduce risk levels. This research provides theoretical foundations and policy recommendations for promoting corporate improvement in ESG performance, strengthening information disclosure, and improving the capital market environment.