The Impact Of ESG Rating Change Events On Abnormal Returns

By the end of the third quarter of 2021,the number of public and private equity funds in the direction of ESG was close to 1000,with a total scale of more than 79 billion yuan.It can be seen that ESG investment has shown an explosive development trend in recent years.With the introduction of China’s dual-carbon policy and high-quality development-related requirements,our government and enterprises have gradually paid more attention to the concept of ESG.At present,there are many foreign literatures discussing the relationship between ESG rating and enterprise income and risk.Research on the impact of ESG rating in China’s academia has also gradually increased in recent years.Under the background of the current era,the study of the dynamic change of ESG rating is of great significance.The main problems discussed in this thesis are:We construct ESG rating change variables based on the ESG level of listed companies including three change directions:rating upgraded,rating unchanged and rating downgraded.According to this classification variable,We can explore the impact of ESG rating change events on the abnormal returns of Shanghai A-share listed companies.By exploring the relationship between rating change events and the company’s abnormal rate of return,this thesis tests whether the rating change index can provide new and valuable information for investors to change their investment strategies and obtain excess returns.The empirical methods used in this thesis are Event Study Method,Panel regression and DID.ESG rating data are from Huazheng Index Company,Bloomberg and Hexun.com.First of all,according to the daily yield of stocks and markets,the market model and the Chinese version of Fama three-factor model are used to calculate the CAAR.Secondly,using the CAR after events as a dependent variable,this paper adopts a OLS panel regression model and a fixed effect regression model to generate different regression equations by adding control variables and interaction terms.Finally,in order to make the empirical conclusion more reliable,this thesis uses Difference-in-difference regression based on the CAR that before or after the event calculated by the rating increase or decline.At the same time,by combining with the newly released carbon neutrality rating data,the thesis uses the above three empirical methods to study the differences between the two small sample companies with high carbon neutrality score and low group,then provide policy advice for listed companies to implement the green concept and help the country’s high-quality development.The main empirical conclusions of this article are:1.The upgrade of ESG rating will bring positive abnormal returns to the company,and the downgrade of ESG rating will bring negative abnormal returns to the company.The impact of the downgrade events will be more obvious due to information asymmetry.2.Panel regression evidence shows that the impact of the company’s ESG rating change on abnormal returns is related to the previous ESG rating level.Listed companies with lower ESG ratings last time has more room for improvement in excess returns when their ESG ratings are upgraded,while for listed companies with higher ESG ratings in the last time will make the company lose less and play a protective role for the company when they face ESG ratings downgrade.At the same time,the panel regression results show that the CAR of the company after the rating event also depends on some company fundamental variables.For example,the smaller the market capitalization or the shorter the listing year of the company,the higher the abnormal return after the event,and the higher the dividend yield of the company,the higher the CAR after the event.3.The impact of the ESG rating change events on the company’s earnings will also vary significantly due to the level of carbon neutralization rating scores.Listed companies with higher carbon neutralization rating scores will get higher CAR after the rating upgrade event.Due to the poor environmental performance of low-group companies,the rating upgrade event will eventually bring negative abnormal returns to the company,but it still plays a protective and buffer compared with the rating downgrade event.