An Empirical Study On The Impact Of ESG Rating Differences On The Excess Return Of A-share Stocks

With the continuous improvement of China’s multi-level capital market and the rapid development of green finance in recent years,the ESG investment concept has become increasingly popular.Especially in the post epidemic era,the sustainable development investment concept represented by ESG is gradually replacing the traditional investment concept that only focuses on the financial performance.However,relevant fields in China are still in the initial stage.Despite the active participation of all parties in the market,a unified rating system,standardized information disclosure guidance,and strict regulatory policies have not yet been followed up,resulting in significant differences in the time series and cross-section of ESG rating itself and its sub ratings,reducing the effectiveness of ESG investments.On the one hand,investors have to frequently change positions in the face of a large amount of heterogeneous information,which invalidates the original sustainable investment strategy and fails to achieve expected excess returns.On the other hand,some enterprises have paid a lot of costs to undertake ESG responsibility and information disclosure,but the actual income has not achieved the expected effect,even lower than other enterprises.In this context,studying the impact of ESG rating differences on excess returns of A-share stocks has important theoretical and practical significance,especially for improving the construction of China’s ESG investment market.Based on information asymmetry theory,efficient market hypothesis theory,sustainable development theory,stakeholder theory,and principal-agent theory,this article analyzes the impact of ESG rating itself and its sub ratings differences on the excess returns of A-share stocks across different institutions.According to national policies’ divisions,combined with the main business types of enterprises,this article classifies enterprises to deeply study the differences in the impact of different enterprise types.Based on ESG rating data of five mainstream market institutions from 2010 to2021,by constructing a regression model for empirical research,this article finds that only when the level of average ESG rating and the degree of difference are both considered,the strategy can obtain significant positive excess returns on their stocks.In terms of segmentation,the capital cost paid by enterprises for environmental improvement is significantly higher than the capital income.About corporate governance,while pursuing high rating performance,investors also accept the small range of fluctuations in the rating.After dividing green and brown companies,this article finds that the specific impact on the excess returns of the two types of corporate stocks is completely different: the market only focuses on the differences in ESG ratings of green companies,and even very low differences can lead to significantly negative excess returns.Brown companies will generate positive excess returns due to their good ESG performance,but the negative impact of the difference is more evident.This article further finds that the market only focuses on whether green companies perform well in corporate governance,not on other parts.For brown companies,the market has paid considerable attention to their environmental rating performance.High rating performance with low differences can bring positive stock excess returns to brown companies,but even very low rating differences can weaken some positive effects,and brown companies often pay higher capital costs for high environmental ratings.The above conclusions have all passed the robustness test,confirming that the differences between the ESG rating itself and its sub ratings have an impact on the effectiveness of investment on a cross-sectional basis.Finally,aiming to improve the construction of ESG investment market and enhance investment effectiveness,based on empirical research conclusions,this article puts forward corresponding applicability suggestions for various parties.While top regulators incorporate incentive policies into the ESG information disclosure and regulatory system,listed companies should adhere to the ESG development philosophy and improve the quality of relevant information disclosure,enabling rating agencies to publish ESG rating information that reflects all market information under a standardized rating system,thereby promoting investors to achieve true sustainable development investment.