ESG Rating Divergence, Information Frictions, and Capital Market Efficiency: A Mechanism-Based Synthesis from China

Abstract

The rapid expansion of ESG (Environment, Society and Governance) investment has placed ESG ratings at the core of capital market decisions. Nevertheless, the significant differences among various rating agencies have drawn widespread attention to the reliability of ESG information and its impact on market efficiency. To this end, this paper establishes a comprehensive analytical framework to assess the impact of ESG rating discrepancies on the information of the capital market, with stock price synchronicity serving as the measurement indicator. Based on a review of the relevant literature, it integrates studies on information asymmetry, limited investor attention, and analyst information intermediation. On this basis, it summarizes three main transmission paths through which ESG rating discrepancies impact information efficiency: heightened information asymmetry, scattered investor attention, and reduced analyst prediction quality. The results suggest that, taking into account the institutional features of China's capital market, including the dominance of retail investors, relatively weak information disclosure, and the strong policy-driven ESG, the aforementioned effects may be significantly amplified in the Chinese context.