Parent-subsidiary dispersion and ESG rating disparities: evidence from China

Abstract

This study examines how geographic and institutional distances between parent and subsidiary companies impact environmental, social, and governance (ESG) rating disparities, defined as the inconsistency in ESG ratings for the same company across different ESG rating agencies. Specifically, focusing on these agencies’ cognitive decision-making processes, we analyse a sample of Chinese listed companies between 2009 and 2022 and find that greater parent-subsidiary dispersion is associated with smaller ESG rating disparities. We identify two mechanisms influencing raters’ decisions: the peripheral route, as described by dual-process theory, and reputation concern, which leads to centrality bias...