Do Commercial Ties Influence ESG Ratings? Evidence from Moody's and S&P
ABSTRACT We provide the first evidence that conflicts of interest arising from commercial ties lead to bias in environmental, social, and governance (ESG) ratings. Using the acquisitions of Vigeo Eiris and RobecoSAM by Moody's and S&P as shocks to the commercial ties between ESG rating agen...
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| Veröffentlicht in: | Journal of accounting research 2024-12, Vol.62 (5), p.1901-1940 |
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| container_issue | 5 |
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| container_title | Journal of accounting research |
| container_volume | 62 |
| creator | LI, XUANBO LOU, YUN ZHANG, LIANDONG |
| description | ABSTRACT
We provide the first evidence that conflicts of interest arising from commercial ties lead to bias in environmental, social, and governance (ESG) ratings. Using the acquisitions of Vigeo Eiris and RobecoSAM by Moody's and S&P as shocks to the commercial ties between ESG rating agencies and their rated firms, we show that, after their acquisitions by the credit rating agencies (CRAs), ESG rating agencies issue higher ratings to existing paying clients of the CRAs. This effect is greater for firms that have more intensive business relationships with the CRAs, but weaker for firms with more transparent ESG disclosures or higher long‐term institutional ownership. The upwardly biased ESG ratings help client firms issue more green bonds and enable the CRAs to maintain credit rating business. Finally, the upwardly biased ESG ratings are less informative of future ESG news. Overall, the business incentives of rating providers appear to engender ESG rating bias. |
| doi_str_mv | 10.1111/1475-679X.12582 |
| format | Article |
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We provide the first evidence that conflicts of interest arising from commercial ties lead to bias in environmental, social, and governance (ESG) ratings. Using the acquisitions of Vigeo Eiris and RobecoSAM by Moody's and S&P as shocks to the commercial ties between ESG rating agencies and their rated firms, we show that, after their acquisitions by the credit rating agencies (CRAs), ESG rating agencies issue higher ratings to existing paying clients of the CRAs. This effect is greater for firms that have more intensive business relationships with the CRAs, but weaker for firms with more transparent ESG disclosures or higher long‐term institutional ownership. The upwardly biased ESG ratings help client firms issue more green bonds and enable the CRAs to maintain credit rating business. Finally, the upwardly biased ESG ratings are less informative of future ESG news. Overall, the business incentives of rating providers appear to engender ESG rating bias.</description><identifier>ISSN: 0021-8456</identifier><identifier>EISSN: 1475-679X</identifier><identifier>DOI: 10.1111/1475-679X.12582</identifier><language>eng</language><publisher>Chicago: Blackwell Publishing Ltd</publisher><subject>Bias ; commercial ties ; Companies ; Conflicts of interest ; Credit ratings ; disclosure ; ESG ; Governance ; Ownership ; rating agencies ; sustainability ; Trade</subject><ispartof>Journal of accounting research, 2024-12, Vol.62 (5), p.1901-1940</ispartof><rights>2024 The Author(s). published by Wiley Periodicals LLC on behalf of The Chookaszian Accounting Research Center at the University of Chicago Booth School of Business.</rights><rights>2024. This article is published under http://creativecommons.org/licenses/by-nc-nd/4.0/ (the “License”). Notwithstanding the ProQuest Terms and Conditions, you may use this content in accordance with the terms of the License.</rights><lds50>peer_reviewed</lds50><oa>free_for_read</oa><woscitedreferencessubscribed>false</woscitedreferencessubscribed><cites>FETCH-LOGICAL-c2662-e37d698bcaeb66b84a5056fbb72ee0e25c676649cb28e8c3a6a2e38999a63f23</cites><orcidid>0000-0003-0844-7811</orcidid></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><linktopdf>$$Uhttps://onlinelibrary.wiley.com/doi/pdf/10.1111%2F1475-679X.12582$$EPDF$$P50$$Gwiley$$Hfree_for_read</linktopdf><linktohtml>$$Uhttps://onlinelibrary.wiley.com/doi/full/10.1111%2F1475-679X.12582$$EHTML$$P50$$Gwiley$$Hfree_for_read</linktohtml><link.rule.ids>314,780,784,1417,27924,27925,45574,45575</link.rule.ids></links><search><creatorcontrib>LI, XUANBO</creatorcontrib><creatorcontrib>LOU, YUN</creatorcontrib><creatorcontrib>ZHANG, LIANDONG</creatorcontrib><title>Do Commercial Ties Influence ESG Ratings? Evidence from Moody's and S&P</title><title>Journal of accounting research</title><description>ABSTRACT
We provide the first evidence that conflicts of interest arising from commercial ties lead to bias in environmental, social, and governance (ESG) ratings. Using the acquisitions of Vigeo Eiris and RobecoSAM by Moody's and S&P as shocks to the commercial ties between ESG rating agencies and their rated firms, we show that, after their acquisitions by the credit rating agencies (CRAs), ESG rating agencies issue higher ratings to existing paying clients of the CRAs. This effect is greater for firms that have more intensive business relationships with the CRAs, but weaker for firms with more transparent ESG disclosures or higher long‐term institutional ownership. The upwardly biased ESG ratings help client firms issue more green bonds and enable the CRAs to maintain credit rating business. Finally, the upwardly biased ESG ratings are less informative of future ESG news. Overall, the business incentives of rating providers appear to engender ESG rating bias.</description><subject>Bias</subject><subject>commercial ties</subject><subject>Companies</subject><subject>Conflicts of interest</subject><subject>Credit ratings</subject><subject>disclosure</subject><subject>ESG</subject><subject>Governance</subject><subject>Ownership</subject><subject>rating agencies</subject><subject>sustainability</subject><subject>Trade</subject><issn>0021-8456</issn><issn>1475-679X</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2024</creationdate><recordtype>article</recordtype><sourceid>24P</sourceid><sourceid>WIN</sourceid><recordid>eNqFkMFLwzAUh4MoOKdnrwFBT92StHlNTjLmnJPJZNvBW0jTVDq6Ziabsv_ebhU9-i4PHt_v9-BD6JqSHm2mT5OUR5DKtx5lXLAT1Pm9nKIOIYxGIuFwji5CWBFCJI9pB40fHB669dp6U-oKL0sb8KQuqp2tjcWjxRjP9bas38M9Hn2W-fFaeLfGL87l-7uAdZ3jxe3rJTordBXs1c_uouXjaDl8iqaz8WQ4mEaGAbDIxmkOUmRG2wwgE4nmhEORZSmzlljGDaQAiTQZE1aYWINmNhZSSg1xweIuumlrN9597GzYqpXb-br5qGLKEiaAMGiofksZ70LwtlAbX6613ytK1EGWOqhRBzXqKKtJ4DZhjavL8MfLxhMQELxBoEW-ysru_2tUz7PBvO3-BjjRdEs</recordid><startdate>202412</startdate><enddate>202412</enddate><creator>LI, XUANBO</creator><creator>LOU, YUN</creator><creator>ZHANG, LIANDONG</creator><general>Blackwell Publishing Ltd</general><scope>24P</scope><scope>WIN</scope><scope>OQ6</scope><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope><orcidid>https://orcid.org/0000-0003-0844-7811</orcidid></search><sort><creationdate>202412</creationdate><title>Do Commercial Ties Influence ESG Ratings? Evidence from Moody's and S&P</title><author>LI, XUANBO ; LOU, YUN ; ZHANG, LIANDONG</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c2662-e37d698bcaeb66b84a5056fbb72ee0e25c676649cb28e8c3a6a2e38999a63f23</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2024</creationdate><topic>Bias</topic><topic>commercial ties</topic><topic>Companies</topic><topic>Conflicts of interest</topic><topic>Credit ratings</topic><topic>disclosure</topic><topic>ESG</topic><topic>Governance</topic><topic>Ownership</topic><topic>rating agencies</topic><topic>sustainability</topic><topic>Trade</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>LI, XUANBO</creatorcontrib><creatorcontrib>LOU, YUN</creatorcontrib><creatorcontrib>ZHANG, LIANDONG</creatorcontrib><collection>Wiley Online Library Open Access</collection><collection>Wiley Online Library Free Content</collection><collection>ECONIS</collection><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>Journal of accounting research</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>LI, XUANBO</au><au>LOU, YUN</au><au>ZHANG, LIANDONG</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Do Commercial Ties Influence ESG Ratings? Evidence from Moody's and S&P</atitle><jtitle>Journal of accounting research</jtitle><date>2024-12</date><risdate>2024</risdate><volume>62</volume><issue>5</issue><spage>1901</spage><epage>1940</epage><pages>1901-1940</pages><issn>0021-8456</issn><eissn>1475-679X</eissn><abstract>ABSTRACT
We provide the first evidence that conflicts of interest arising from commercial ties lead to bias in environmental, social, and governance (ESG) ratings. Using the acquisitions of Vigeo Eiris and RobecoSAM by Moody's and S&P as shocks to the commercial ties between ESG rating agencies and their rated firms, we show that, after their acquisitions by the credit rating agencies (CRAs), ESG rating agencies issue higher ratings to existing paying clients of the CRAs. This effect is greater for firms that have more intensive business relationships with the CRAs, but weaker for firms with more transparent ESG disclosures or higher long‐term institutional ownership. The upwardly biased ESG ratings help client firms issue more green bonds and enable the CRAs to maintain credit rating business. Finally, the upwardly biased ESG ratings are less informative of future ESG news. Overall, the business incentives of rating providers appear to engender ESG rating bias.</abstract><cop>Chicago</cop><pub>Blackwell Publishing Ltd</pub><doi>10.1111/1475-679X.12582</doi><tpages>40</tpages><orcidid>https://orcid.org/0000-0003-0844-7811</orcidid><oa>free_for_read</oa></addata></record> |
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| subjects | Bias commercial ties Companies Conflicts of interest Credit ratings disclosure ESG Governance Ownership rating agencies sustainability Trade |
| title | Do Commercial Ties Influence ESG Ratings? Evidence from Moody's and S&P |
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