ESG Rating Divergence and Trade Credit Financing: Unveiling the Hurdles to Corporate Liquidity and Growth

AbstractESG ratings have emerged as a critical determinant in trade credit decision-making, reflecting the growing emphasis on sustainability in corporate finance. This study investigates how ESG rating divergence impacts trade credit financing, focusing on customer concentration as the mediating economic mechanism. The analysis utilizes data from Chinese A-share firms listed on the Shenzhen and Shanghai stock exchanges. Robustness tests, including instrumental variable methods, time grouping analysis, and alternative measures, confirm that ESG rating divergence significantly reduces trade credit financing. Second, ESG rating divergence negatively affects trade credit financing by diminishing customer concentration. Third, the heterogeneity based on active ESG disclosure, high-carbon emissions, absence of Big Four firms, and higher debt costs face a more pronounced negative impact of ESG divergence on trade credit financing. Finally, divergences in the social and environmental pillars of ESG ratings are the primary drivers of reduced trade credit financing Keywords: Trade credit financing, ESG rating divergence, Customer concentration, corporate growth, cost of debt, ESG disclosure.