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<p>The existence of disagreement in ESG ratings has attracted significant attention from academia and industry, yet there is barely research on its impact on taxation. This paper examines the relationship between ESG rating disagreement and corporate tax avoidance using data from Chinese-listed firms during 2015–2022. We find that greater ESG rating disagreement significantly increases corporate tax avoidance, even after controlling for ESG scores. This suggests rating uncertainty influences tax strategies beyond ESG performance itself. To establish causality, we leverage the staggered expansion of ESG coverage by international raters as a quasi-natural experiment to conduct instrumental variable regression. Channel tests suggest that higher disagreement is associated with increased financing costs and constraints and weakened market power, prompting firms to cut taxes to increase internal funding. The results highlight an unintended consequence of ESG rating inconsistencies - heightened corporate tax avoidance. Standardization could mitigate this effect. Our study illuminates how emerging ESG considerations shape tax planning amid informational ambiguities.</p>

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The cost of ESG rating disagreement: increased corporate tax avoidance in China

  • 期刊论文

  • 发表日期：

    2025年11月12日

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  • Yiwen Ma,
  • Seoklin Yim,
  • Linghao Zhang

摘要

The existence of disagreement in ESG ratings has attracted significant attention from academia and industry, yet there is barely research on its impact on taxation. This paper examines the relationship between ESG rating disagreement and corporate tax avoidance using data from Chinese-listed firms during 2015–2022. We find that greater ESG rating disagreement significantly increases corporate tax avoidance, even after controlling for ESG scores. This suggests rating uncertainty influences tax strategies beyond ESG performance itself. To establish causality, we leverage the staggered expansion of ESG coverage by international raters as a quasi-natural experiment to conduct instrumental variable regression. Channel tests suggest that higher disagreement is associated with increased financing costs and constraints and weakened market power, prompting firms to cut taxes to increase internal funding. The results highlight an unintended consequence of ESG rating inconsistencies - heightened corporate tax avoidance. Standardization could mitigate this effect. Our study illuminates how emerging ESG considerations shape tax planning amid informational ambiguities.