Can Improvements in the Social Credit Environment Reduce ESG Rating Disagreement: Evidence from a Quasi-Natural Experiment of China's Social Credit System Reform

ESG rating divergence is a key source of cognitive bias in capital markets' assessment of corporate ESG performance. Using Chinese A-share listed firms from 2013 to 2023 as the research sample and exploiting the pilot reform of the social credit system as a quasi-natural experiment, this paper examines the impact of social credit improvement on corporate ESG rating divergence and its underlying mechanisms. The results show that social credit improvement significantly reduces ESG rating divergence. Mechanism tests indicate that social credit improvement operates through both an "information effect"and a "governance effect": it alleviates information asymmetry and reduces rating agencies' reliance on private information, while also improving internal control quality and curbing greenwashing risk, thereby lowering ESG rating divergence. Heterogeneity analysis shows that the mitigating effect of improved social credit on ESG rating disagreement is mainly reflected in the governance (G) dimension, and is more pronounced among firms located in regions with stronger environmental regulation and greater public environmental attention, as well as among heavily polluting firms and firms whose management teams lack environmental backgrounds. Economic consequence analysis shows that by reducing ESG rating divergence, social credit improvement helps lower stock price crash risk and supply chain risk, thereby enhancing firms' stability in both capital and product markets. This study extends the literature on the positive effects of social credit system development and provides implications for improving the ESG governance system and promoting high-quality sustainable development.