Revisiting Information Asymmetry: The role of ESG rating dispersion in inhibiting corporate innovation

This study examines the relationship between ESG rating dispersion and corporate innovation. Measured as differences in ESG scores across multiple rating agencies, ESG rating dispersion captures information inconsistency, rating noise, and firm-level complexity. Using Poisson, Negative Binomial, and pooled linear regression models, we find that higher ESG rating dispersion is associated with lower corporate innovation. Greater dispersion is also associated with higher information asymmetry, weaker ESG signaling, and increased uncertainty, which in turn link to financing constraints, reduced innovation willingness, and lower human capital deployment. Subsample analyses indicate these associations are more pronounced for firms with higher financial constraints and higher ESG ratings. The findings highlight the informational role of ESG rating dispersion and its relevance for understanding variation in corporate innovation.