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The Determinants of ESG Ratings: Rater Ownership Matters


Time: 10:00 am-11:30 am, Sept. 24th, 2021

Platform: Zoom

Speaker: Dragon Yongjun Tang

(Rutgers University)

Link: https://us06web.zoom.us/j/83034958277?pwd=emkyd0NTQVhiR2xKbGpUZVNnekQwZz09

Meeting ID: 830 3495 8277

Passcode: inse



Ratings on environmental, social, and governance (ESG) are largely obscure but have become widely used by investors. We show that firms held by the same owners as the rater (“sister firms”) receive higher ESG ratings. Exogenously created sister firms through acquisitions reveals causality for the common ownership effect. Sister firms receive higher ratings when the common owners have larger stakes in the ESG rater. Owners can benefit from higher ratings… Notwithstanding their higher initial ratings, sister firms have worse future ESG outcomes. These findings suggest that the quality of ESG ratings can be undermined by conflicts of interest and have important implication for practitioners and regulators.





Prof. Dragon Yongjun Tang is Professor of Finance and Head of the Finance Area at the University of Hong Kong. Prof. Tang's current research interests include credit risk, credit ratings, credit derivatives, structured products, securitization, Chinese banking and credit markets, and green finance. He has previously done research on mutual funds and Bayesian methods in finance. His research articles are published in top journals such as the Journal of Finance and Journal of Financial Economics. His research findings are featured in, among others, Bloomberg, Economist, and Financial Times. He has also received numerous research awards. In HKU, Prof. Tang was the Director of the Master of Finance Program in 2012 – 2015, and has been the Associate Director of the Center for Financial Innovation and Development since 2013, and of the Center for China Financial Research since 2015. Prof. Tang received his Ph.D. in finance from the University of Texas at Austin in 2005.