Environmental, Social, and Governance Rating Divergence and Firm Value: Evidence From the Chinese A‐Share Market

ABSTRACT

This study examines the association between environmental, social, and governance (ESG) rating divergence and firm value among Chinese A‐share firms. Using six ESG providers and a final fixed‐effects sample of 3532 firm‐year observations from 2019 to 2023, we find that greater ESG rating divergence is positively associated with log market capitalization. The association remains robust when alternative measures of divergence are used, winsorization, provider‐coverage restrictions, and additional financial and governance controls, and is concentrated in social‐rating divergence. Results are outcome‐sensitive: market‐to‐book remains positive and significant, whereas Tobin's Q measures are not statistically significant. These findings indicate that ESG rating divergence is associated with market capitalization but should not be interpreted as a universal valuation premium. The study highlights valuation measurement, provider coverage, and ESG heterogeneity as important boundary conditions in assessing the market relevance of ESG rating disagreement and the economic consequences of ESG rating.