The relationship between corporate Environmental, Social, and Governance (ESG) performance and its value has garnered increasing attention in recent times. However, the utilization of ESG scores by rating agencies, a critical intermediary in the linkage between ESG performance and value, presents challenges to ESG research and investment as a result of inherent subjectivity, hysteresis, and discrepant coverage. Fortunately, news can provide an objective, timely, and socially relevant perspective to augment prevailing rating frameworks and alleviate their shortcomings. This study endeavors to scrutinize the influence of ESG-related news on the Chinese stock market, to showcase its efficacy in supplementing the appraisal of ESG performance. The study's findings demonstrate that (1) the stock market is significantly impacted by ESGrelated news; (2) ESG-related news with different attributes (sentiments and sources) have notably diverse effects on the stock market; and (3) the heterogeneity among enterprises (industries and ownership structures) affects their ability to withstand ESGrelated news shocks. This study contributes novel insights to the comprehensive and objective assessment of corporate ESG performance and the management of its media image by providing a vantage point on ESG-related news.

As many ESG rating agencies have flourished to meet rising interests in ESG investing, we examine the information provider role of these rating agencies. We hypothesize that new ratings can add information useful to investors about rated firms besides any changes to the average level and dispersion in ratings. We exploited the empirical setting where the introduction of various ESG ratings in China is staggered over time and across firms. We show that an increase in the number of ratings by different agencies for a given firm will induce more mutual funds’ investments towards that firm. This is unexplained by rating inflation or rating shopping channels. We further show that such effect is more pronounced when incumbent and entrant agents provide complementary information. For different types of funds, we find different sensitivities to the arrival of new agents in accordance with their explicit requirements for ESG mandate. And interestingly ESG funds that track ESG indices are not responsive to new ratings as ESG indices are sticky in choosing the reference rating. We also provide evidence that the documented effects are not due to endogenous actions taken by incumbent agencies or the firms. Our paper provides interesting and causal evidence of the incremental information from additional ESG ratings which have important implications for the market competition and regulations of ESG rating agencies.

We investigate the relationship between ESG rating divergence and stock returns from an investor’s perspective, to explore the impact of inconsistency among ESG rating agencies on the capital market. We construct ESG rating divergence data using ratings from three prominent ESG rating agencies in China. Our study is based on 54,679 company-quarter observations from 2018 to 2022, which covers 4,377 Chinese listed companies. Our findings demonstrate a significant negative impact of ESG rating divergence on stock returns, which we validate through a series of robustness tests and endogenous analyses. Notably, we find that investors’ expectations mediate the relationship between ESG rating divergence and stock returns. Further analyses show that only the divergence in social ratings have a significant inhibitory effect on stock returns. In addition, ESG rating divergence significantly impedes subsequent average ESG ratings. The adverse relationship between ESG rating divergence and stock returns is particularly pronounced in non-heavy pollution companies, non-state-owned companies, and companies with lower external attention.

Using a difference-in-differences (DID) approach, this research assesses the effect of a firm’s credit rating issued by domestic rating agencies on stock price crash risk (SPCR). The results show that SPCR for treated firms decreases by 11% after firm ratings, suggesting that they can aggravate information content at the firm level. The effect is consistently more evident when stock price synchronization is higher and is stronger in firms with low media coverage, in firms with low audit quality, in state-controlled firms, and in firms with low investor protection. In addition, during a bear market year, the quality of firm ratings is higher. Overall, our findings support that investors could gain more information via firm ratings issued by credit rating agencies. Through our research, policymakers and investors can pay more attention to firm ratings that help play the information intermediary role of credit rating agencies.

Over the past twenty years, especially the past decade, China has taken enormous strides to develop its bond market as an integral step of financial reform. This paper aims to provide the most up-to-date overview of Chinese bond markets, by highlighting two distinct and largely segmented markets: Over-the-Counter based interbank market, and centralized exchange market. We explain various bond instruments traded in these two markets, highlighting their inherent connection with the banking system, and many multi-layer regulatory bodies who are interacting with each other in an intricate way. We also covers the credit ratings and rating agencies in Chinese market, and offer an account of ever-rising default incidents in China starting 2014. Finally, we discuss the recent regulatory tightening of shadow banking since late 2017 and its impact on bond investors, and the forces behind the internalization of Chinese bond markets in the near future.

With growing awareness of sustainability, the field of Environmental, Social and Governance (ESG), has been attracting mainstream investors and researchers. Many previous studies have found inconclusive or mixed results on the relationship between ESG ratings and firms’ financial performance, which are mainly attributed to their varied markets, time horizons, and sources of ESG rating. Based on evidence from an emerging market, namely China, this paper examines whether ESG is an adequate indicator for firms’ future financial performance. Given the divergence in ESG rating methodologies, we use ESG data from two ESG rating agencies, one based in China (SynTao) and the other based in Switzerland (RepRisk), for robustness. Specifically, we investigate 377 China A-share companies covered by both agencies and find that ESG rating, albeit divergent due to disparate methodologies, is instrumental in predicting the trend of corporate financial performance (CFP). This work verifies that the forward-looking nature of ESG makes it crucial for firms’ long-term valuation and financial performance in emerging markets. Throughout the research, we observe four issues in the current ESG rating process: the opacity and inaccessibility of source data, the obscurity of ESG rating methodologies adopted by rating agencies, the lack of automated pipeline, and the unannounced historical data rewriting. We believe that the public blockchain ecosystem is promising to address these issues, and we propose future research on the ESG framework for blockchain to call for sustainability focus on this emerging technology.

We examine the influence of implicit government guarantees on the information content of credit ratings in China, guided by a theoretical credit rating game model in the presence of government guarantees. Using issuers’ controlling shareholder identity as the defining metric of implicit government guarantees, we document a less sensitive relationship between credit ratings and primary market offer yields for SOE bonds (i.e., bonds issued by firms controlled by government or government related agencies) than that for non SOE bonds. Moreover, ratings of non SOE bonds have a stronger predictive power on both future downgrades and a market based measure of issuer expected default probability than those of SOE bonds. These findings are robust to considering the u nobserved influence of the controlling shareholder identity on security pricing and bond default risk. Taken together, our empirical findings are consistent with the model’s prediction that government guarantees can dampen the incentives for credit rating agencies to acquire costly information, thus lowering the equilibrium informativeness of ratings for SOE bonds.

We provide the first direct evidence on how issuers choose a credit rating agency (CRA). Using rating data from a leading CRA in China, we find that although in most cases the issuers publish more favourable ratings, in some cases issuers just select the ratings provided by CRAs they have business relationships with, especially when the more favourable ratings are above issuers’ prior ratings. Our further analysis suggests that this phenomenon is driven by the switching cost arising from the issuer being considered as a rating shopper when it obtains an upgrade from a CRA without a business relationship.

In this paper, we provide an overview of the subprime mortgage securitization process and the seven key informational frictions that arise. We discuss the ways that market participants work to minimize these frictions and speculate on how this process broke down. We continue with a complete picture of the subprime borrower and the subprime loan, discussing both predatory borrowing and predatory lending. We present the key structural features of a typical subprime securitization, document how rating agencies assign credit ratings to mortgage-backed securities, and outline how these agencies monitor the performance of mortgage pools over time. Throughout the paper, we draw upon the example of a mortgage pool securitized by New Century Financial during 2006.