research paper effects of globalization

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Research Article

Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities

* E-mail: [email protected]

Affiliations Faculty of Management, Universiti Teknologi Malaysia (UTM), Johor, Malaysia, Department of Management, Mobarakeh Branch, Islamic Azad University, Isfahan, Iran

Affiliation Applied Statistics Department, Economics and Administration Faculty, University of Malaya, Kuala Lumpur, Malaysia

• Parisa Samimi, 
• Hashem Salarzadeh Jenatabadi

• Published: April 10, 2014
• https://doi.org/10.1371/journal.pone.0087824
• Reader Comments

This study was carried out to investigate the effect of economic globalization on economic growth in OIC countries. Furthermore, the study examined the effect of complementary policies on the growth effect of globalization. It also investigated whether the growth effect of globalization depends on the income level of countries. Utilizing the generalized method of moments (GMM) estimator within the framework of a dynamic panel data approach, we provide evidence which suggests that economic globalization has statistically significant impact on economic growth in OIC countries. The results indicate that this positive effect is increased in the countries with better-educated workers and well-developed financial systems. Our finding shows that the effect of economic globalization also depends on the country’s level of income. High and middle-income countries benefit from globalization whereas low-income countries do not gain from it. In fact, the countries should receive the appropriate income level to be benefited from globalization. Economic globalization not only directly promotes growth but also indirectly does so via complementary reforms.

Citation: Samimi P, Jenatabadi HS (2014) Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities. PLoS ONE 9(4): e87824. https://doi.org/10.1371/journal.pone.0087824

Editor: Rodrigo Huerta-Quintanilla, Cinvestav-Merida, Mexico

Received: November 5, 2013; Accepted: January 2, 2014; Published: April 10, 2014

Copyright: © 2014 Samimi, Jenatabadi. This is an open-access article distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

Funding: The study is supported by the Ministry of Higher Education of Malaysia, Malaysian International Scholarship (MIS). The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.

Competing interests: The authors have declared that no competing interests exist.

Introduction

Globalization, as a complicated process, is not a new phenomenon and our world has experienced its effects on different aspects of lives such as economical, social, environmental and political from many years ago [1] – [4] . Economic globalization includes flows of goods and services across borders, international capital flows, reduction in tariffs and trade barriers, immigration, and the spread of technology, and knowledge beyond borders. It is source of much debate and conflict like any source of great power.

The broad effects of globalization on different aspects of life grab a great deal of attention over the past three decades. As countries, especially developing countries are speeding up their openness in recent years the concern about globalization and its different effects on economic growth, poverty, inequality, environment and cultural dominance are increased. As a significant subset of the developing world, Organization of Islamic Cooperation (OIC) countries are also faced by opportunities and costs of globalization. Figure 1 shows the upward trend of economic globalization among different income group of OIC countries.

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https://doi.org/10.1371/journal.pone.0087824.g001

Although OICs are rich in natural resources, these resources were not being used efficiently. It seems that finding new ways to use the OICs economic capacity more efficiently are important and necessary for them to improve their economic situation in the world. Among the areas where globalization is thought, the link between economic growth and globalization has been become focus of attention by many researchers. Improving economic growth is the aim of policy makers as it shows the success of nations. Due to the increasing trend of globalization, finding the effect of globalization on economic growth is prominent.

The net effect of globalization on economic growth remains puzzling since previous empirical analysis did not support the existent of a systematic positive or negative impact of globalization on growth. Most of these studies suffer from econometrics shortcoming, narrow definition of globalization and small number of countries. The effect of economic globalization on the economic growth in OICs is also ambiguous. Existing empirical studies have not indicated the positive or negative impact of globalization in OICs. The relationship between economic globalization and economic growth is important especially for economic policies.

Recently, researchers have claimed that the growth effects of globalization depend on the economic structure of the countries during the process of globalization. The impact of globalization on economic growth of countries also could be changed by the set of complementary policies such as improvement in human capital and financial system. In fact, globalization by itself does not increase or decrease economic growth. The effect of complementary policies is very important as it helps countries to be successful in globalization process.

In this paper, we examine the relationship between economic globalization and growth in panel of selected OIC countries over the period 1980–2008. Furthermore, we would explore whether the growth effects of economic globalization depend on the set of complementary policies and income level of OIC countries.

The paper is organized as follows. The next section consists of a review of relevant studies on the impact of globalization on growth. Afterward the model specification is described. It is followed by the methodology of this study as well as the data sets that are utilized in the estimation of the model and the empirical strategy. Then, the econometric results are reported and discussed. The last section summarizes and concludes the paper with important issues on policy implications.

Literature Review

The relationship between globalization and growth is a heated and highly debated topic on the growth and development literature. Yet, this issue is far from being resolved. Theoretical growth studies report at best a contradictory and inconclusive discussion on the relationship between globalization and growth. Some of the studies found positive the effect of globalization on growth through effective allocation of domestic resources, diffusion of technology, improvement in factor productivity and augmentation of capital [5] , [6] . In contrast, others argued that globalization has harmful effect on growth in countries with weak institutions and political instability and in countries, which specialized in ineffective activities in the process of globalization [5] , [7] , [8] .

Given the conflicting theoretical views, many studies have been empirically examined the impact of the globalization on economic growth in developed and developing countries. Generally, the literature on the globalization-economic growth nexus provides at least three schools of thought. First, many studies support the idea that globalization accentuates economic growth [9] – [19] . Pioneering early studies include Dollar [9] , Sachs et al. [15] and Edwards [11] , who examined the impact of trade openness by using different index on economic growth. The findings of these studies implied that openness is associated with more rapid growth.

In 2006, Dreher introduced a new comprehensive index of globalization, KOF, to examine the impact of globalization on growth in an unbalanced dynamic panel of 123 countries between 1970 and 2000. The overall result showed that globalization promotes economic growth. The economic and social dimensions have positive impact on growth whereas political dimension has no effect on growth. The robustness of the results of Dreher [19] is approved by Rao and Vadlamannati [20] which use KOF and examine its impact on growth rate of 21 African countries during 1970–2005. The positive effect of globalization on economic growth is also confirmed by the extreme bounds analysis. The result indicated that the positive effect of globalization on growth is larger than the effect of investment on growth.

The second school of thought, which supported by some scholars such as Alesina et al. [21] , Rodrik [22] and Rodriguez and Rodrik [23] , has been more reserve in supporting the globalization-led growth nexus. Rodriguez and Rodrik [23] challenged the robustness of Dollar (1992), Sachs, Warner et al. (1995) and Edwards [11] studies. They believed that weak evidence support the idea of positive relationship between openness and growth. They mentioned the lack of control for some prominent growth indicators as well as using incomprehensive trade openness index as shortcomings of these works. Warner [24] refuted the results of Rodriguez and Rodrik (2000). He mentioned that Rodriguez and Rodrik (2000) used an uncommon index to measure trade restriction (tariffs revenues divided by imports). Warner (2003) explained that they ignored all other barriers on trade and suggested using only the tariffs and quotas of textbook trade policy to measure trade restriction in countries.

Krugman [25] strongly disagreed with the argument that international financial integration is a major engine of economic development. This is because capital is not an important factor to increase economic development and the large flows of capital from rich to poor countries have never occurred. Therefore, developing countries are unlikely to increase economic growth through financial openness. Levine [26] was more optimistic about the impact of financial liberalization than Krugman. He concluded, based on theory and empirical evidences, that the domestic financial system has a prominent effect on economic growth through boosting total factor productivity. The factors that improve the functioning of domestic financial markets and banks like financial integration can stimulate improvements in resource allocation and boost economic growth.

The third school of thoughts covers the studies that found nonlinear relationship between globalization and growth with emphasis on the effect of complementary policies. Borensztein, De Gregorio et al. (1998) investigated the impact of FDI on economic growth in a cross-country framework by developing a model of endogenous growth to examine the role of FDI in the economic growth in developing countries. They found that FDI, which is measured by the fraction of products produced by foreign firms in the total number of products, reduces the costs of introducing new varieties of capital goods, thus increasing the rate at which new capital goods are introduced. The results showed a strong complementary effect between stock of human capital and FDI to enhance economic growth. They interpreted this finding with the observation that the advanced technology, brought by FDI, increases the growth rate of host economy when the country has sufficient level of human capital. In this situation, the FDI is more productive than domestic investment.

Calderón and Poggio [27] examined the structural factors that may have impact on growth effect of trade openness. The growth benefits of rising trade openness are conditional on the level of progress in structural areas including education, innovation, infrastructure, institutions, the regulatory framework, and financial development. Indeed, they found that the lack of progress in these areas could restrict the potential benefits of trade openness. Chang et al. [28] found that the growth effects of openness may be significantly improved when the investment in human capital is stronger, financial markets are deeper, price inflation is lower, and public infrastructure is more readily available. Gu and Dong [29] emphasized that the harmful or useful growth effect of financial globalization heavily depends on the level of financial development of economies. In fact, if financial openness happens without any improvement in the financial system of countries, growth will replace by volatility.

However, the review of the empirical literature indicates that the impact of the economic globalization on economic growth is influenced by sample, econometric techniques, period specifications, observed and unobserved country-specific effects. Most of the literature in the field of globalization, concentrates on the effect of trade or foreign capital volume (de facto indices) on economic growth. The problem is that de facto indices do not proportionally capture trade and financial globalization policies. The rate of protections and tariff need to be accounted since they are policy based variables, capturing the severity of trade restrictions in a country. Therefore, globalization index should contain trade and capital restrictions as well as trade and capital volume. Thus, this paper avoids this problem by using a comprehensive index which called KOF [30] . The economic dimension of this index captures the volume and restriction of trade and capital flow of countries.

Despite the numerous studies, the effect of economic globalization on economic growth in OIC is still scarce. The results of recent studies on the effect of globalization in OICs are not significant, as they have not examined the impact of globalization by empirical model such as Zeinelabdin [31] and Dabour [32] . Those that used empirical model, investigated the effect of globalization for one country such as Ates [33] and Oyvat [34] , or did it for some OIC members in different groups such as East Asia by Guillaumin [35] or as group of developing countries by Haddad et al. [36] and Warner [24] . Therefore, the aim of this study is filling the gap in research devoted solely to investigate the effects of economic globalization on growth in selected OICs. In addition, the study will consider the impact of complimentary polices on the growth effects of globalization in selected OIC countries.

Model Specification

Methodology and Data

This paper applies the generalized method of moments (GMM) panel estimator first suggested by Anderson and Hsiao [38] and later developed further by Arellano and Bond [39] . This flexible method requires only weak assumption that makes it one of the most widely used econometric techniques especially in growth studies. The dynamic GMM procedure is as follow: first, to eliminate the individual effect form dynamic growth model, the method takes differences. Then, it instruments the right hand side variables by using their lagged values. The last step is to eliminate the inconsistency arising from the endogeneity of the explanatory variables.

The consistency of the GMM estimator depends on two specification tests. The first is a Sargan test of over-identifying restrictions, which tests the overall validity of the instruments. Failure to reject the null hypothesis gives support to the model. The second test examines the null hypothesis that the error term is not serially correlated.

The GMM can be applied in one- or two-step variants. The one-step estimators use weighting matrices that are independent of estimated parameters, whereas the two-step GMM estimator uses the so-called optimal weighting matrices in which the moment conditions are weighted by a consistent estimate of their covariance matrix. However, the use of the two-step estimator in small samples, as in our study, has problem derived from proliferation of instruments. Furthermore, the estimated standard errors of the two-step GMM estimator tend to be small. Consequently, this paper employs the one-step GMM estimator.

In the specification, year dummies are used as instrument variable because other regressors are not strictly exogenous. The maximum lags length of independent variable which used as instrument is 2 to select the optimal lag, the AR(1) and AR(2) statistics are employed. There is convincing evidence that too many moment conditions introduce bias while increasing efficiency. It is, therefore, suggested that a subset of these moment conditions can be used to take advantage of the trade-off between the reduction in bias and the loss in efficiency. We restrict the moment conditions to a maximum of two lags on the dependent variable.

Data and Empirical Strategy

We estimated Eq. (1) using the GMM estimator based on a panel of 33 OIC countries. Table S1 in File S1 lists the countries and their income groups in the sample. The choice of countries selected for this study is primarily dictated by availability of reliable data over the sample period among all OIC countries. The panel covers the period 1980–2008 and is unbalanced. Following [40] , we use annual data in order to maximize sample size and to identify the parameters of interest more precisely. In fact, averaging out data removes useful variation from the data, which could help to identify the parameters of interest with more precision.

The dependent variable in our sample is logged per capita real GDP, using the purchasing power parity (PPP) exchange rates and is obtained from the Penn World Table (PWT 7.0). The economic dimension of KOF index is derived from Dreher et al. [41] . We use some other variables, along with economic globalization to control other factors influenced economic growth. Table S2 in File S2 shows the variables, their proxies and source that they obtain.

We relied on the three main approaches to capture the effects of economic globalization on economic growth in OIC countries. The first one is the baseline specification (Eq. (1)) which estimates the effect of economic globalization on economic growth.

The second approach is to examine whether the effect of globalization on growth depends on the complementary policies in the form of level of human capital and financial development. To test, the interactions of economic globalization and financial development (KOF*FD) and economic globalization and human capital (KOF*HCS) are included as additional explanatory variables, apart from the standard variables used in the growth equation. The KOF, HCS and FD are included in the model individually as well for two reasons. First, the significance of the interaction term may be the result of the omission of these variables by themselves. Thus, in that way, it can be tested jointly whether these variables affect growth by themselves or through the interaction term. Second, to ensure that the interaction term did not proxy for KOF, HCS or FD, these variables were included in the regression independently.

In the third approach, in order to study the role of income level of countries on the growth effect of globalization, the countries are split based on income level. Accordingly, countries were classified into three groups: high-income countries (3), middle-income (21) and low-income (9) countries. Next, dummy variables were created for high-income (Dum 3), middle-income (Dum 2) and low-income (Dum 1) groups. Then interaction terms were created for dummy variables and KOF. These interactions will be added to the baseline specification.

Findings and Discussion

This section presents the empirical results of three approaches, based on the GMM -dynamic panel data; in Tables 1 – 3 . Table 1 presents a preliminary analysis on the effects of economic globalization on growth. Table 2 displays coefficient estimates obtained from the baseline specification, which used added two interaction terms of economic globalization and financial development and economic globalization and human capital. Table 3 reports the coefficients estimate from a specification that uses dummies to capture the impact of income level of OIC countries on the growth effect of globalization.

https://doi.org/10.1371/journal.pone.0087824.t001

https://doi.org/10.1371/journal.pone.0087824.t002

https://doi.org/10.1371/journal.pone.0087824.t003

The results in Table 1 indicate that economic globalization has positive impact on growth and the coefficient is significant at 1 percent level. The positive effect is consistent with the bulk of the existing empirical literature that support beneficial effect of globalization on economic growth [9] , [11] , [13] , [19] , [42] , [43] .

According to the theoretical literature, globalization enhances economic growth by allocating resources more efficiently as OIC countries that can be specialized in activities with comparative advantages. By increasing the size of markets through globalization, these countries can be benefited from economic of scale, lower cost of research and knowledge spillovers. It also augments capital in OICs as they provide a higher return to capital. It has raised productivity and innovation, supported the spread of knowledge and new technologies as the important factors in the process of development. The results also indicate that growth is enhanced by lower level of government expenditure, lower level of inflation, higher level of human capital, deeper financial development, more domestic investment and better institutions.

Table 2 represents that the coefficients on the interaction between the KOF, HCS and FD are statistically significant at 1% level and with the positive sign. The findings indicate that economic globalization not only directly promotes growth but also indirectly does via complementary reforms. On the other hand, the positive effect of economic globalization can be significantly enhanced if some complementary reforms in terms of human capital and financial development are undertaken.

In fact, the implementation of new technologies transferred from advanced economies requires skilled workers. The results of this study confirm the importance of increasing educated workers as a complementary policy in progressing globalization. However, countries with higher level of human capital can be better and faster to imitate and implement the transferred technologies. Besides, the financial openness brings along the knowledge and managerial for implementing the new technology. It can be helpful in improving the level of human capital in host countries. Moreover, the strong and well-functioned financial systems can lead the flow of foreign capital to the productive and compatible sectors in developing countries. Overall, with higher level of human capital and stronger financial systems, the globalized countries benefit from the growth effect of globalization. The obtained results supported by previous studies in relative to financial and trade globalization such as [5] , [27] , [44] , [45] .

Table (3 ) shows that the estimated coefficients on KOF*dum3 and KOF*dum2 are statistically significant at the 5% level with positive sign. The KOF*dum1 is statistically significant with negative sign. It means that increase in economic globalization in high and middle-income countries boost economic growth but this effect is diverse for low-income countries. The reason might be related to economic structure of these countries that are not received to the initial condition necessary to be benefited from globalization. In fact, countries should be received to the appropriate income level to be benefited by globalization.

The diagnostic tests in tables 1 – 3 show that the estimated equation is free from simultaneity bias and second-order correlation. The results of Sargan test accept the null hypothesis that supports the validity of the instrument use in dynamic GMM.

Conclusions and Implications

Numerous researchers have investigated the impact of economic globalization on economic growth. Unfortunately, theoretical and the empirical literature have produced conflicting conclusions that need more investigation. The current study shed light on the growth effect of globalization by using a comprehensive index for globalization and applying a robust econometrics technique. Specifically, this paper assesses whether the growth effects of globalization depend on the complementary polices as well as income level of OIC countries.

Using a panel data of OIC countries over the 1980–2008 period, we draw three important conclusions from the empirical analysis. First, the coefficient measuring the effect of the economic globalization on growth was positive and significant, indicating that economic globalization affects economic growth of OIC countries in a positive way. Second, the positive effect of globalization on growth is increased in countries with higher level of human capital and deeper financial development. Finally, economic globalization does affect growth, whether the effect is beneficial depends on the level of income of each group. It means that economies should have some initial condition to be benefited from the positive effects of globalization. The results explain why some countries have been successful in globalizing world and others not.

The findings of our study suggest that public policies designed to integrate to the world might are not optimal for economic growth by itself. Economic globalization not only directly promotes growth but also indirectly does so via complementary reforms.

The policy implications of this study are relatively straightforward. Integrating to the global economy is only one part of the story. The other is how to benefits more from globalization. In this respect, the responsibility of policymakers is to improve the level of educated workers and strength of financial systems to get more opportunities from globalization. These economic policies are important not only in their own right, but also in helping developing countries to derive the benefits of globalization.

However, implementation of new technologies transferred from advanced economies requires skilled workers. The results of this study confirm the importance of increasing educated workers as a complementary policy in progressing globalization. In fact, countries with higher level of human capital can better and faster imitate and implement the transferred technologies. The higher level of human capital and certain skill of human capital determine whether technology is successfully absorbed across countries. This shows the importance of human capital in the success of countries in the globalizing world.

Financial openness in the form of FDI brings along the knowledge and managerial for implementing the new technology. It can be helpful in upgrading the level of human capital in host countries. Moreover, strong and well-functioned financial systems can lead the flow of foreign capital to the productive and compatible sectors in OICs.

In addition, the results show that economic globalization does affect growth, whether the effect is beneficial depends on the level of income of countries. High and middle income countries benefit from globalization whereas low-income countries do not gain from it. As Birdsall [46] mentioned globalization is fundamentally asymmetric for poor countries, because their economic structure and markets are asymmetric. So, the risks of globalization hurt the poor more. The structure of the export of low-income countries heavily depends on primary commodity and natural resource which make them vulnerable to the global shocks.

The major research limitation of this study was the failure to collect data for all OIC countries. Therefore future research for all OIC countries would shed light on the relationship between economic globalization and economic growth.

Supporting Information

Sample of Countries.

https://doi.org/10.1371/journal.pone.0087824.s001

The Name and Definition of Indicators.

https://doi.org/10.1371/journal.pone.0087824.s002

Author Contributions

Conceived and designed the experiments: PS. Performed the experiments: PS. Analyzed the data: PS. Contributed reagents/materials/analysis tools: PS HSJ. Wrote the paper: PS HSJ.

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A Comprehensive Analysis of Globalization: Factors, Effects, and Economic Agents' Dynamics Across Developing and Developed Economies

12 Pages Posted: 17 Jan 2024

Aritro Chatterjee

Dubai College

Date Written: December 30, 2023

This paper explores various aspects of globalization, from the key factors attributed to its rapid increase in recent years—technological determinants, socioeconomic preferences, and governmental policy—to its effects on key economic agents and stakeholders in developing and developed countries. It also considers the correlation between global economic integration and multinational corporations as well as the associated benefits and detriments of foreign direct investment and multinational corporations for an economy.

Keywords: Globalization, Multinational Corporations, Foreign Direct Investment, Developing Countries, Developed Countries

JEL Classification: F60, F23, E00, E60, F15

Suggested Citation: Suggested Citation

Aritro Chatterjee (Contact Author)

Dubai college ( email ), do you have a job opening that you would like to promote on ssrn, paper statistics, related ejournals, macroeconomics: employment, income & informal economy ejournal.

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The effect of globalization on economic development indicators: an inter-regional approach.

1. Introduction

2. literature review, 2.1. globalization, 2.1.1. per capita income, 2.1.2. government health expenditure, 2.2. empirical literature review, 3. materials and methods, 3.2. methodology.

• H 0 1 : KOF V   does   not   Granger   cause   INCOME V .
• H 0 2 : INCOME V   does   not   Granger   cause   KOF V .
• H 0 3 : KOF V   does   not   Granger   cause   HEALTH V .
• H 0 4 : HEALTH V   does   not   Granger   cause   KOF V .
• H 0 5 : INCOME V   does   not   Granger   cause   HEALTH V .
• H 0 6 : HEALTH V   does   not   Granger   cause   INCOME V .

5. Discussion

6. conclusions, author contributions, acknowledgments, conflicts of interest.

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Martín Cervantes, P.A.; Rueda López, N.; Cruz Rambaud, S. The Effect of Globalization on Economic Development Indicators: An Inter-Regional Approach. Sustainability 2020 , 12 , 1942. https://doi.org/10.3390/su12051942

Martín Cervantes PA, Rueda López N, Cruz Rambaud S. The Effect of Globalization on Economic Development Indicators: An Inter-Regional Approach. Sustainability . 2020; 12(5):1942. https://doi.org/10.3390/su12051942

Martín Cervantes, Pedro Antonio, Nuria Rueda López, and Salvador Cruz Rambaud. 2020. "The Effect of Globalization on Economic Development Indicators: An Inter-Regional Approach" Sustainability 12, no. 5: 1942. https://doi.org/10.3390/su12051942

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The State of Globalization in 2021

• Steven A. Altman
• Caroline R. Bastian

Trade, capital, and information flows have stabilized, recovered, and even grown in the past year.

As the coronavirus swept the world, closing borders and halting international trade and capital flows, there were questions about the pandemic’s lasting impact on globalization. But a close look at the recent data paints a much more optimistic picture. While international travel remains significantly down and is not expected to rebound until 2023, cross-border trade, capital, and information flows have largely stabilized, recovered, or even grown over the last year. The bottom line for business is that Covid-19 has not knocked globalization down to anywhere close to what would be required for strategists to narrow their focus to their home countries or regions.

Cross-border flows plummeted in 2020 as the Covid-19 pandemic swept the world, reinforcing doubts about the future of globalization. As we move into 2021, the latest data paint a clearer — and more hopeful — picture. Global business is not going away, but the landscape is shifting, with important implications for strategy and management.

• Steven A. Altman is a senior research scholar, adjunct assistant professor, and director of the DHL Initiative on Globalization at the NYU Stern Center for the Future of Management .
• CB Caroline R. Bastian is a research scholar at the DHL Initiative on Globalization.

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Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities

Parisa samimi.

1 Faculty of Management, Universiti Teknologi Malaysia (UTM), Johor, Malaysia

2 Department of Management, Mobarakeh Branch, Islamic Azad University, Isfahan, Iran

Hashem Salarzadeh Jenatabadi

3 Applied Statistics Department, Economics and Administration Faculty, University of Malaya, Kuala Lumpur, Malaysia

Conceived and designed the experiments: PS. Performed the experiments: PS. Analyzed the data: PS. Contributed reagents/materials/analysis tools: PS HSJ. Wrote the paper: PS HSJ.

Associated Data

This study was carried out to investigate the effect of economic globalization on economic growth in OIC countries. Furthermore, the study examined the effect of complementary policies on the growth effect of globalization. It also investigated whether the growth effect of globalization depends on the income level of countries. Utilizing the generalized method of moments (GMM) estimator within the framework of a dynamic panel data approach, we provide evidence which suggests that economic globalization has statistically significant impact on economic growth in OIC countries. The results indicate that this positive effect is increased in the countries with better-educated workers and well-developed financial systems. Our finding shows that the effect of economic globalization also depends on the country’s level of income. High and middle-income countries benefit from globalization whereas low-income countries do not gain from it. In fact, the countries should receive the appropriate income level to be benefited from globalization. Economic globalization not only directly promotes growth but also indirectly does so via complementary reforms.

Introduction

Globalization, as a complicated process, is not a new phenomenon and our world has experienced its effects on different aspects of lives such as economical, social, environmental and political from many years ago [1] – [4] . Economic globalization includes flows of goods and services across borders, international capital flows, reduction in tariffs and trade barriers, immigration, and the spread of technology, and knowledge beyond borders. It is source of much debate and conflict like any source of great power.

The broad effects of globalization on different aspects of life grab a great deal of attention over the past three decades. As countries, especially developing countries are speeding up their openness in recent years the concern about globalization and its different effects on economic growth, poverty, inequality, environment and cultural dominance are increased. As a significant subset of the developing world, Organization of Islamic Cooperation (OIC) countries are also faced by opportunities and costs of globalization. Figure 1 shows the upward trend of economic globalization among different income group of OIC countries.

Although OICs are rich in natural resources, these resources were not being used efficiently. It seems that finding new ways to use the OICs economic capacity more efficiently are important and necessary for them to improve their economic situation in the world. Among the areas where globalization is thought, the link between economic growth and globalization has been become focus of attention by many researchers. Improving economic growth is the aim of policy makers as it shows the success of nations. Due to the increasing trend of globalization, finding the effect of globalization on economic growth is prominent.

The net effect of globalization on economic growth remains puzzling since previous empirical analysis did not support the existent of a systematic positive or negative impact of globalization on growth. Most of these studies suffer from econometrics shortcoming, narrow definition of globalization and small number of countries. The effect of economic globalization on the economic growth in OICs is also ambiguous. Existing empirical studies have not indicated the positive or negative impact of globalization in OICs. The relationship between economic globalization and economic growth is important especially for economic policies.

Recently, researchers have claimed that the growth effects of globalization depend on the economic structure of the countries during the process of globalization. The impact of globalization on economic growth of countries also could be changed by the set of complementary policies such as improvement in human capital and financial system. In fact, globalization by itself does not increase or decrease economic growth. The effect of complementary policies is very important as it helps countries to be successful in globalization process.

In this paper, we examine the relationship between economic globalization and growth in panel of selected OIC countries over the period 1980–2008. Furthermore, we would explore whether the growth effects of economic globalization depend on the set of complementary policies and income level of OIC countries.

The paper is organized as follows. The next section consists of a review of relevant studies on the impact of globalization on growth. Afterward the model specification is described. It is followed by the methodology of this study as well as the data sets that are utilized in the estimation of the model and the empirical strategy. Then, the econometric results are reported and discussed. The last section summarizes and concludes the paper with important issues on policy implications.

Literature Review

The relationship between globalization and growth is a heated and highly debated topic on the growth and development literature. Yet, this issue is far from being resolved. Theoretical growth studies report at best a contradictory and inconclusive discussion on the relationship between globalization and growth. Some of the studies found positive the effect of globalization on growth through effective allocation of domestic resources, diffusion of technology, improvement in factor productivity and augmentation of capital [5] , [6] . In contrast, others argued that globalization has harmful effect on growth in countries with weak institutions and political instability and in countries, which specialized in ineffective activities in the process of globalization [5] , [7] , [8] .

Given the conflicting theoretical views, many studies have been empirically examined the impact of the globalization on economic growth in developed and developing countries. Generally, the literature on the globalization-economic growth nexus provides at least three schools of thought. First, many studies support the idea that globalization accentuates economic growth [9] – [19] . Pioneering early studies include Dollar [9] , Sachs et al. [15] and Edwards [11] , who examined the impact of trade openness by using different index on economic growth. The findings of these studies implied that openness is associated with more rapid growth.

In 2006, Dreher introduced a new comprehensive index of globalization, KOF, to examine the impact of globalization on growth in an unbalanced dynamic panel of 123 countries between 1970 and 2000. The overall result showed that globalization promotes economic growth. The economic and social dimensions have positive impact on growth whereas political dimension has no effect on growth. The robustness of the results of Dreher [19] is approved by Rao and Vadlamannati [20] which use KOF and examine its impact on growth rate of 21 African countries during 1970–2005. The positive effect of globalization on economic growth is also confirmed by the extreme bounds analysis. The result indicated that the positive effect of globalization on growth is larger than the effect of investment on growth.

The second school of thought, which supported by some scholars such as Alesina et al. [21] , Rodrik [22] and Rodriguez and Rodrik [23] , has been more reserve in supporting the globalization-led growth nexus. Rodriguez and Rodrik [23] challenged the robustness of Dollar (1992), Sachs, Warner et al. (1995) and Edwards [11] studies. They believed that weak evidence support the idea of positive relationship between openness and growth. They mentioned the lack of control for some prominent growth indicators as well as using incomprehensive trade openness index as shortcomings of these works. Warner [24] refuted the results of Rodriguez and Rodrik (2000). He mentioned that Rodriguez and Rodrik (2000) used an uncommon index to measure trade restriction (tariffs revenues divided by imports). Warner (2003) explained that they ignored all other barriers on trade and suggested using only the tariffs and quotas of textbook trade policy to measure trade restriction in countries.

Krugman [25] strongly disagreed with the argument that international financial integration is a major engine of economic development. This is because capital is not an important factor to increase economic development and the large flows of capital from rich to poor countries have never occurred. Therefore, developing countries are unlikely to increase economic growth through financial openness. Levine [26] was more optimistic about the impact of financial liberalization than Krugman. He concluded, based on theory and empirical evidences, that the domestic financial system has a prominent effect on economic growth through boosting total factor productivity. The factors that improve the functioning of domestic financial markets and banks like financial integration can stimulate improvements in resource allocation and boost economic growth.

The third school of thoughts covers the studies that found nonlinear relationship between globalization and growth with emphasis on the effect of complementary policies. Borensztein, De Gregorio et al. (1998) investigated the impact of FDI on economic growth in a cross-country framework by developing a model of endogenous growth to examine the role of FDI in the economic growth in developing countries. They found that FDI, which is measured by the fraction of products produced by foreign firms in the total number of products, reduces the costs of introducing new varieties of capital goods, thus increasing the rate at which new capital goods are introduced. The results showed a strong complementary effect between stock of human capital and FDI to enhance economic growth. They interpreted this finding with the observation that the advanced technology, brought by FDI, increases the growth rate of host economy when the country has sufficient level of human capital. In this situation, the FDI is more productive than domestic investment.

Calderón and Poggio [27] examined the structural factors that may have impact on growth effect of trade openness. The growth benefits of rising trade openness are conditional on the level of progress in structural areas including education, innovation, infrastructure, institutions, the regulatory framework, and financial development. Indeed, they found that the lack of progress in these areas could restrict the potential benefits of trade openness. Chang et al. [28] found that the growth effects of openness may be significantly improved when the investment in human capital is stronger, financial markets are deeper, price inflation is lower, and public infrastructure is more readily available. Gu and Dong [29] emphasized that the harmful or useful growth effect of financial globalization heavily depends on the level of financial development of economies. In fact, if financial openness happens without any improvement in the financial system of countries, growth will replace by volatility.

However, the review of the empirical literature indicates that the impact of the economic globalization on economic growth is influenced by sample, econometric techniques, period specifications, observed and unobserved country-specific effects. Most of the literature in the field of globalization, concentrates on the effect of trade or foreign capital volume (de facto indices) on economic growth. The problem is that de facto indices do not proportionally capture trade and financial globalization policies. The rate of protections and tariff need to be accounted since they are policy based variables, capturing the severity of trade restrictions in a country. Therefore, globalization index should contain trade and capital restrictions as well as trade and capital volume. Thus, this paper avoids this problem by using a comprehensive index which called KOF [30] . The economic dimension of this index captures the volume and restriction of trade and capital flow of countries.

Despite the numerous studies, the effect of economic globalization on economic growth in OIC is still scarce. The results of recent studies on the effect of globalization in OICs are not significant, as they have not examined the impact of globalization by empirical model such as Zeinelabdin [31] and Dabour [32] . Those that used empirical model, investigated the effect of globalization for one country such as Ates [33] and Oyvat [34] , or did it for some OIC members in different groups such as East Asia by Guillaumin [35] or as group of developing countries by Haddad et al. [36] and Warner [24] . Therefore, the aim of this study is filling the gap in research devoted solely to investigate the effects of economic globalization on growth in selected OICs. In addition, the study will consider the impact of complimentary polices on the growth effects of globalization in selected OIC countries.

Model Specification

This study uses a dynamic panel data model to investigate the effect of globalization on economic growth. The model can be shown as follows:

Methodology and Data

This paper applies the generalized method of moments (GMM) panel estimator first suggested by Anderson and Hsiao [38] and later developed further by Arellano and Bond [39] . This flexible method requires only weak assumption that makes it one of the most widely used econometric techniques especially in growth studies. The dynamic GMM procedure is as follow: first, to eliminate the individual effect form dynamic growth model, the method takes differences. Then, it instruments the right hand side variables by using their lagged values. The last step is to eliminate the inconsistency arising from the endogeneity of the explanatory variables.

The consistency of the GMM estimator depends on two specification tests. The first is a Sargan test of over-identifying restrictions, which tests the overall validity of the instruments. Failure to reject the null hypothesis gives support to the model. The second test examines the null hypothesis that the error term is not serially correlated.

The GMM can be applied in one- or two-step variants. The one-step estimators use weighting matrices that are independent of estimated parameters, whereas the two-step GMM estimator uses the so-called optimal weighting matrices in which the moment conditions are weighted by a consistent estimate of their covariance matrix. However, the use of the two-step estimator in small samples, as in our study, has problem derived from proliferation of instruments. Furthermore, the estimated standard errors of the two-step GMM estimator tend to be small. Consequently, this paper employs the one-step GMM estimator.

In the specification, year dummies are used as instrument variable because other regressors are not strictly exogenous. The maximum lags length of independent variable which used as instrument is 2 to select the optimal lag, the AR(1) and AR(2) statistics are employed. There is convincing evidence that too many moment conditions introduce bias while increasing efficiency. It is, therefore, suggested that a subset of these moment conditions can be used to take advantage of the trade-off between the reduction in bias and the loss in efficiency. We restrict the moment conditions to a maximum of two lags on the dependent variable.

Data and Empirical Strategy

We estimated Eq. (1) using the GMM estimator based on a panel of 33 OIC countries. Table S1 in File S1 lists the countries and their income groups in the sample. The choice of countries selected for this study is primarily dictated by availability of reliable data over the sample period among all OIC countries. The panel covers the period 1980–2008 and is unbalanced. Following [40] , we use annual data in order to maximize sample size and to identify the parameters of interest more precisely. In fact, averaging out data removes useful variation from the data, which could help to identify the parameters of interest with more precision.

The dependent variable in our sample is logged per capita real GDP, using the purchasing power parity (PPP) exchange rates and is obtained from the Penn World Table (PWT 7.0). The economic dimension of KOF index is derived from Dreher et al. [41] . We use some other variables, along with economic globalization to control other factors influenced economic growth. Table S2 in File S2 shows the variables, their proxies and source that they obtain.

We relied on the three main approaches to capture the effects of economic globalization on economic growth in OIC countries. The first one is the baseline specification (Eq. (1)) which estimates the effect of economic globalization on economic growth.

The second approach is to examine whether the effect of globalization on growth depends on the complementary policies in the form of level of human capital and financial development. To test, the interactions of economic globalization and financial development (KOF*FD) and economic globalization and human capital (KOF*HCS) are included as additional explanatory variables, apart from the standard variables used in the growth equation. The KOF, HCS and FD are included in the model individually as well for two reasons. First, the significance of the interaction term may be the result of the omission of these variables by themselves. Thus, in that way, it can be tested jointly whether these variables affect growth by themselves or through the interaction term. Second, to ensure that the interaction term did not proxy for KOF, HCS or FD, these variables were included in the regression independently.

In the third approach, in order to study the role of income level of countries on the growth effect of globalization, the countries are split based on income level. Accordingly, countries were classified into three groups: high-income countries (3), middle-income (21) and low-income (9) countries. Next, dummy variables were created for high-income (Dum 3), middle-income (Dum 2) and low-income (Dum 1) groups. Then interaction terms were created for dummy variables and KOF. These interactions will be added to the baseline specification.

Findings and Discussion

This section presents the empirical results of three approaches, based on the GMM -dynamic panel data; in Tables 1 – 3 . Table 1 presents a preliminary analysis on the effects of economic globalization on growth. Table 2 displays coefficient estimates obtained from the baseline specification, which used added two interaction terms of economic globalization and financial development and economic globalization and human capital. Table 3 reports the coefficients estimate from a specification that uses dummies to capture the impact of income level of OIC countries on the growth effect of globalization.

The results in Table 1 indicate that economic globalization has positive impact on growth and the coefficient is significant at 1 percent level. The positive effect is consistent with the bulk of the existing empirical literature that support beneficial effect of globalization on economic growth [9] , [11] , [13] , [19] , [42] , [43] .

According to the theoretical literature, globalization enhances economic growth by allocating resources more efficiently as OIC countries that can be specialized in activities with comparative advantages. By increasing the size of markets through globalization, these countries can be benefited from economic of scale, lower cost of research and knowledge spillovers. It also augments capital in OICs as they provide a higher return to capital. It has raised productivity and innovation, supported the spread of knowledge and new technologies as the important factors in the process of development. The results also indicate that growth is enhanced by lower level of government expenditure, lower level of inflation, higher level of human capital, deeper financial development, more domestic investment and better institutions.

Table 2 represents that the coefficients on the interaction between the KOF, HCS and FD are statistically significant at 1% level and with the positive sign. The findings indicate that economic globalization not only directly promotes growth but also indirectly does via complementary reforms. On the other hand, the positive effect of economic globalization can be significantly enhanced if some complementary reforms in terms of human capital and financial development are undertaken.

In fact, the implementation of new technologies transferred from advanced economies requires skilled workers. The results of this study confirm the importance of increasing educated workers as a complementary policy in progressing globalization. However, countries with higher level of human capital can be better and faster to imitate and implement the transferred technologies. Besides, the financial openness brings along the knowledge and managerial for implementing the new technology. It can be helpful in improving the level of human capital in host countries. Moreover, the strong and well-functioned financial systems can lead the flow of foreign capital to the productive and compatible sectors in developing countries. Overall, with higher level of human capital and stronger financial systems, the globalized countries benefit from the growth effect of globalization. The obtained results supported by previous studies in relative to financial and trade globalization such as [5] , [27] , [44] , [45] .

Table (3 ) shows that the estimated coefficients on KOF*dum3 and KOF*dum2 are statistically significant at the 5% level with positive sign. The KOF*dum1 is statistically significant with negative sign. It means that increase in economic globalization in high and middle-income countries boost economic growth but this effect is diverse for low-income countries. The reason might be related to economic structure of these countries that are not received to the initial condition necessary to be benefited from globalization. In fact, countries should be received to the appropriate income level to be benefited by globalization.

The diagnostic tests in tables 1 – 3 show that the estimated equation is free from simultaneity bias and second-order correlation. The results of Sargan test accept the null hypothesis that supports the validity of the instrument use in dynamic GMM.

Conclusions and Implications

Numerous researchers have investigated the impact of economic globalization on economic growth. Unfortunately, theoretical and the empirical literature have produced conflicting conclusions that need more investigation. The current study shed light on the growth effect of globalization by using a comprehensive index for globalization and applying a robust econometrics technique. Specifically, this paper assesses whether the growth effects of globalization depend on the complementary polices as well as income level of OIC countries.

Using a panel data of OIC countries over the 1980–2008 period, we draw three important conclusions from the empirical analysis. First, the coefficient measuring the effect of the economic globalization on growth was positive and significant, indicating that economic globalization affects economic growth of OIC countries in a positive way. Second, the positive effect of globalization on growth is increased in countries with higher level of human capital and deeper financial development. Finally, economic globalization does affect growth, whether the effect is beneficial depends on the level of income of each group. It means that economies should have some initial condition to be benefited from the positive effects of globalization. The results explain why some countries have been successful in globalizing world and others not.

The findings of our study suggest that public policies designed to integrate to the world might are not optimal for economic growth by itself. Economic globalization not only directly promotes growth but also indirectly does so via complementary reforms.

The policy implications of this study are relatively straightforward. Integrating to the global economy is only one part of the story. The other is how to benefits more from globalization. In this respect, the responsibility of policymakers is to improve the level of educated workers and strength of financial systems to get more opportunities from globalization. These economic policies are important not only in their own right, but also in helping developing countries to derive the benefits of globalization.

However, implementation of new technologies transferred from advanced economies requires skilled workers. The results of this study confirm the importance of increasing educated workers as a complementary policy in progressing globalization. In fact, countries with higher level of human capital can better and faster imitate and implement the transferred technologies. The higher level of human capital and certain skill of human capital determine whether technology is successfully absorbed across countries. This shows the importance of human capital in the success of countries in the globalizing world.

Financial openness in the form of FDI brings along the knowledge and managerial for implementing the new technology. It can be helpful in upgrading the level of human capital in host countries. Moreover, strong and well-functioned financial systems can lead the flow of foreign capital to the productive and compatible sectors in OICs.

In addition, the results show that economic globalization does affect growth, whether the effect is beneficial depends on the level of income of countries. High and middle income countries benefit from globalization whereas low-income countries do not gain from it. As Birdsall [46] mentioned globalization is fundamentally asymmetric for poor countries, because their economic structure and markets are asymmetric. So, the risks of globalization hurt the poor more. The structure of the export of low-income countries heavily depends on primary commodity and natural resource which make them vulnerable to the global shocks.

The major research limitation of this study was the failure to collect data for all OIC countries. Therefore future research for all OIC countries would shed light on the relationship between economic globalization and economic growth.

Supporting Information

Sample of Countries.

The Name and Definition of Indicators.

Funding Statement

The study is supported by the Ministry of Higher Education of Malaysia, Malaysian International Scholarship (MIS). The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.

• DOI: 10.1136/bmjsem-2023-001831
• Corpus ID: 272215835

Comparative effects of time-restricted feeding versus normal diet on physical performance and body composition in healthy adults with regular exercise habits: a systematic review and meta-analysis

• Ke-wen Wan , Zi-han Dai , +2 authors Stephen Heung-Sang Wong
• Published in BMJ Open Sport & Exercise… 1 August 2024
• BMJ Open Sport & Exercise Medicine

42 References

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The impact of ESG rating disagreement on corporate risk-taking: evidence from China

• Open access
• Published: 01 September 2024
• Volume 2 , article number  18 , ( 2024 )

Cite this article

You have full access to this open access article

• Liyan Dai   ORCID: orcid.org/0009-0007-2332-5261 1 &
• Jingjing Wang 1  

This paper examines the impact and underlying mechanisms of ESG rating disagreement on the risk-taking of Chinese companies listed on the Shanghai and Shenzhen stock exchanges from 2011 to 2020. The research reveals that ESG rating disagreement significantly increases corporate risk-taking. Mechanism tests show that corporate ESG rating disagreement can enhance corporate risk-taking by reducing information asymmetry and alleviating financing constraints. Further analyses find that the agency costs affect the enhancing effect of ESG rating disagreement on corporate risk-taking. Heterogeneity analysis reveals that ESG rating disagreement has a greater effect on corporate risk-taking for non-state-owned firms, small-sized firms, and young firms. This paper provides empirical evidence to promote the construction of China's ESG rating system and enhance corporate risk-taking.

Avoid common mistakes on your manuscript.

1 Introduction

Environmental, Social, and Governance (ESG) criteria serve as crucial indicators for comprehensively assessing the overall operational performance of enterprises and their development prospects in social and environmental contexts. These factors play a significant role in influencing investment decisions. China has faced with the issue of environmental protection coexisting with the continued pursuit of economic expansion (Fu et al. 2024 ), and at the same time, as a major player in the global ESG market, China attaches great importance to the role of ESG. The State-owned Assets Supervision and Administration Commission (SASAC) of the State Council of China has prioritized ESG in promoting corporate social responsibility and has introduced a series of ESG policies.

In September 2018, the China Securities Regulatory Commission (CSRC) revised the "Listed Company Corporate Governance Guidelines," requiring listed companies to disclose environmental and social responsibility information in accordance with laws, regulations, and relevant requirements. In 2022, the Shanghai Stock Exchange issued a notice regarding the disclosure of annual reports for 2021 by Sci-Tech Innovation Board listed companies, requiring these companies to disclose ESG information. In May 2022, SASAC issued the "Action Plan to Improve the Quality of Central Enterprise-controlled Listed Companies," which called for more central enterprise-controlled companies to disclose ESG reports. In December of the same year, the China Securities Regulatory Commission formulated the "Three-Year Action Plan to Improve the Quality of Listed Companies (2022–2025)," explicitly stating the need to establish and improve a sustainable development information disclosure system based on China's realities.

In recent years, the importance of ESG for listed companies has been steadily increasing in China. The number of disclosed ESG reports by A-share listed companies continues to rise, with increased transparency and quality of disclosure content. According to statistics from SynTao Consulting, as of June 2023, a total of 1,714 A-share listed companies had published ESG reports for the year 2022, accounting for 32.9% of all A-share listed companies, showing a 3.3% increase compared to the previous year.

ESG ratings constitute a core component of the ESG evaluation system. Although the reference standards and rating methods of various rating agencies in China are generally similar, there is a large difference in the rating results among various rating agencies. Thus arises ESG rating disagreement, meaning the difference in ESG ratings of a company in the same year by different ESG rating agencies. The reasons for these discrepancies are diverse. From a technical perspective, differences in evaluation methods and indicator selection among rating agencies can lead to variations in rating results. Different rating agencies have distinct ESG evaluation frameworks and weight allocations, resulting in inconsistent ratings for the same company across different agencies. Rating agencies rely on publicly disclosed data and information for assessment, and variations in data disclosure levels and quality among different companies can lead to inconsistencies in rating results.

Firm risk-taking reflects a firm's risk appetite in making business decisions, i.e., its willingness to bear costs in pursuit of high returns. Risk-taking is a key factor in enhancing firm value and promoting sustainable business development (Boubakri et al. 2013 ). At present, most enterprises in China still face problems such as financing constraints and information asymmetry, low transparency of corporate information and the inability to obtain sufficient resources from the capital market, which affects the level of corporate risk-taking. So, can the disagreement of company ESG rating able to provide investors with incremental information, alleviate the problem of information asymmetry, reduce the cost of enterprise financing, and thus improve enterprise risk-taking? Or will it interfere with investors' decision-making, increase the cost of corporate financing, and occupy a certain amount of corporate resources, thus reducing the level of corporate risk-taking? Based on this, this paper investigates the impact of ESG rating disagreement on corporate risk-taking. This paper selects A-share listed companies from 2011–2020 as the research sample, and finds that ESG rating disagreement increases corporate risk-taking. In other words, there is an incremental information on ESG rating disagreement for stakeholders in the Chinese market at this stage.

Possible contributions of this paper are as follows: First, based on existing literature, while the impact of ESG rating disagreement on voluntary information disclosure, stock price synchronicity, corporate value, and investment has been studied, there is no literature on the impact of ESG rating disagreement on corporate risk-taking. This paper connects ESG rating disagreement with corporate risk-taking, enriching the research on the impact of ESG rating disagreement on microeconomic entity behavior. Second, the existing literature explores the factors influencing corporate risk-taking, including internal firm factors such as managerial characteristics, employee compensation and stock incentives, as well as external factors such as economic policies and uncertainty. This paper focuses on the new influencing factor of ESG rating disagreement on corporate risk-taking, expanding the research on factors influencing corporate risk-taking. Third, the research results of this paper show that the enhancing effect of ESG rating disagreement on corporate risk-taking varies with different corporate characteristics. This finding helps companies adopt appropriate ESG rating system construction and management strategies based on their own characteristics.

2 Literature review and theoretical analysis

2.1 relevant literature.

ESG rating disagreement refers to the fact that different rating agencies tend to give inconsistent ratings on the ESG performance of the same company at the same point in time, and the difference between ESG rating results is rating disagreement. There is no single definition of sustainability, nor is there a universally standardized way to measure it (López et al. 2007 ). ESG rating disagreement occur when different rating agencies often give inconsistent ratings on the ESG performance of the same company (Billio et al. 2021 ). At present, the ESG rating of listed companies in China has not reached a consensus, and there are significant differences in ESG ratings among different rating agencies (Luo et al. 2023 ). International research has long observed disagreement in ESG ratings. Dorfleitner et al. ( 2015 ) noted the lack of convergence in ESG ratings, emphasizing the need for stakeholders to critically evaluate the effectiveness of ESG scores. Research on ESG rating disagreement focuses on the reasons behind corporate ESG rating disagreement and their impact on stock prices and information disclosure. Chatterji et al. ( 2016 ) identified two reasons for low correlation in sustainability ratings: a lack of "common theorization" among evaluators regarding corporate social responsibility and "comparability" issues arising from different measurement methods. Berg et al. ( 2022 ) identified three distinct sources of divergence: "scope divergence," "measurement divergence," and "weight divergence." Cookson & Niessner ( 2020 ) suggested that disagreement arises from varying information sets and interpretations, with higher ESG disclosure leading to increased rating disparities. High ESG rating disagreement have implications, including risk premiums (Gibson et al. 2021 ) and negative effects on stock prices and external financing (Christensen et al. 2022 ). Doron et al. ( 2022 ) found that diverging ESG ratings can make sustainable investing riskier, thereby reducing investor participation and potentially harming economic welfare.

Corporate risk-taking reflects the tendency of firms to chase high profits and be willing to take risks for them (Boubakri et al. 2013 ). Enterprise risk-taking to a certain extent reflects the enterprise's risk preference, the enterprise to bear a certain amount of risk is the enterprise in the decision-making in order to pursue the inevitable results of profit, the enterprise to obtain the benefits must bear a certain amount of risk (Li & Tang 2010 ). Literature on corporate risk-taking focuses on factors influencing risk-taking and influencing channels of corperate risk-taking. Micro-level factors include social capital of directors (Conrado et al.  2023 ), gender diversity on boards (Ayesha et al.  2021 ), the proportion of independent directors (Zahid et al.  2023 ), and employee quality (Xiong and Hong 2022 ). Macro-level factors include the impact of green financial policies (Deng et al. 2023 ), local government financing vehicles (Bao et al. 2024 ), and competition laws on corporate risk-taking (Shen et al.  2023 ). The main influencing channels to improve risk-taking of enterprise are reducing agency costs and easing financing restrictions (Tao et al.  2024 ; Guo. 2023 ). A certain degree of risk-taking by firms is crucial for firm value enhancement and firm growth (John et al. 2008 ), and high-risk investments, which accelerate firms' capital accumulation, which in turn improves core competencies, fuels firm growth, and further enhances firm value (Faccio et al. 2011 ; Boubakri et al. 2013 ).

2.2 Conceptual theoretical analysis

Firstly, the existence of ESG rating disagreement makes investors treat ESG ratings results more cautiously, learn more about the evaluation criteria and methodologies of different rating agencies, and consider the preferences and areas of focus of different rating agencies in order to make more comprehensive and objective investment decisions. When corporate ESG ratings are highly divergent, it may imply that there is controversy or uncertainty in the market about a company's ESG performance. As a result, firms usually pay more attention to disclosure and transparency in order to demonstrate their ESG practices and performance, with a view to enhancing the trust and recognition of investors and society, and actively conveying more information about the firm's attributes to the market in order to gain a competitive advantage. ESG rating disagreement allows investors to obtain incremental information about the firm, which can reduce the problem of information asymmetry (John & Kim 2008 ). By focusing on ESG disclosure and transparency, firms can monitor and improve management behavior more comprehensively, thereby reducing losses from agency problems and increasing investor and consumer trust in the firm. By openly and transparently displaying their ESG practices, companies can attract more attention from investors and gain more investment opportunities and financial support. Based on the above analysis, the information effect of inconsistent corporate ESG rating disagreement can weaken the information asymmetry problem and improve the transparency of corporate information, which further increases corporate risk-taking.

Second, firms with ESG rating disagreement will further enhance information disclosure and transparency, attracting more investors and financial institutions to pay increasing attention to the ESG performance of firms, and are willing to provide more favorable financing conditions for firms with diversified sustainability performance. As financial constraints affect the risk appetite on firms' investment decisions, financially constrained firms tend to adopt more conservative investment policies to control the overall risk level of the firm (Ding et al. 2022 ). The ESG rating disagreement further eases the information asymmetry between firms and lenders, improves investor trust in firms, and increases access to finance, thereby easing financing constraints. Enterprises are willing to invest in high-risk projects with high return potential, and adequate capital raising can increase the company's risk-taking. Based on the above analyses, the existence of corporate ESG rating disagreement can further alleviate the financing constraints faced by enterprises by reducing the degree of information asymmetry, thus enhancing corporate risk-taking. This paper argues that there is a progressive relationship between the two channels of action of reducing information asymmetry and alleviating financing constraints, which will be further verified.

Finally, the impact of ESG rating disagreement on corporate risk-taking is also affected by agency costs due to conflicts of interest between the firm's shareholders and the firm's managers. Firms' managers act as agents whose goals are primarily to promote their own careers and their personal reputations. Hirshleifer & Thakor ( 1992 ) argued that managers will be risk averse and even forgo value-added risky projects to protect their careers. As a result, corporate managers are often perceived as risk-averse (Akbar et al. 2017 ), whereas shareholders of the firm, as owners, expect the firm's risk-taking to remain at a relatively high level in order to achieve the firm's value-maximization objective, which conflicts with the conservative investment strategy of the managers (Faccio et al. 2016 ). Governance activities within firms can significantly influence firm risk-taking (Ferrero-Ferrero et al. 2012 ), so this paper will further verify how corporate agency costs will affect the relationship between ESG rating disagreement and corporate risk-taking.

3 Research design

3.1 samples and data sources.

This study uses the annual panel data of Chinese A-share listed companies on the Shanghai and Shenzhen stock exchanges from 2011 to 2020 as the research sample. The ESG rating results from four Chinese rating agencies—Sino Securities ESG, Wind ESG, SynTao Green ESG and Hexun are used as the sample. Financial samples from the financial industry are excluded, along with samples from companies with ST and *ST classifications. This article retains the companies with two or more ESG ratings (Christensen et al. 2022 ), and samples with missing values for main explanatory and control variables are excluded. In the end, 525 companies are selected, and ESG rating data is sourced from the CSMAR database, Wind database and Python web scraping from Hexun. Financial data are sourced from the CSMAR database. All the continuous variables are winsorized at the 1st and 99th percentiles to mitigate the impact of outliers.

3.2 Model and variable definitions

To examine the impact of ESG rating disagreement on corporate risk-taking, the following model is constructed:

ESG Rating Disagreement (Disagreement): Firstly, assign values to ESG ratings from the four agencies mentioned and then standardize the values using Z-Score. Finally, use the standard deviation of the ratings from the four agencies as the measure of ESG rating discrepancy.

Corporate Risk-taking (Risk): The volatility of corporate earnings is the most widely used measure of risk-taking because higher risk-taking implies greater uncertainty about the firm's future cash flows. Therefore, this paper refers to the studies of John et al. ( 2008 ) to measure risk-taking by the volatility of corporate earnings. In other words, the degree of Roa volatility is a measure of a company's risk-taking. Roa is calculated by dividing Earnings Before Interest and Taxes (Ebit) by total assets (ASSET) at the end of the year. The greater the volatility of Roa, the higher the corporate risk-taking. The calculation method involves subtracting the industry average Roa from the company's Roa to obtain adjusted Roa (Adj_Roa). The standard deviation (Risk1) and range (Risk2) of adjusted Roa over a rolling three-year period (t, t + 2) are then computed. Finally, drawing on Faccio et al. ( 2011 ), the results are multiplied by 100 to obtain two indicators, Risk1 and Risk2, to measure corporate risk-taking, and the treatment of the scale enables the results to be more intuitive and does not affect their significance level.

Control Variables: In this paper, the control variables for the financial factors of the company include: Size (natural logarithm of total assets), Lev represents the leverage ratio (total liabilities / total assets), Cf represents net operating cash flow (net cash flow from operating activities / total assets at the beginning of the period), Gr represents income growth rate (current year's revenues / previous year's revenues)-1), Tang represents the ratio of tangible assets ((total assets—net intangibles—net goodwill / (total assets)). Corporate Governance Factors include: Top represents the percentage of shares held by the first shareholder (Number of Shares Held by the First Shareholder / Total Share Capital), and Indep represents board independence (Number of Sole Directors/Size of the Board of Directors).

4 Empirical results

4.1 descriptive statistics.

Table 1 presents the descriptive statistics of the main variables for the entire sample. The mean of Disagreement is 0.685, with a maximum value of 2.248 and a minimum value of 0.135, indicating the presence of significant disagreement in ESG ratings within the sample companies. The minimum value of Risk1 is 0.163, the maximum is 21.44, and the median is 1.786. This suggests that the level of risk-taking of the sample firms as a whole performs well and that there are differences between the levels of risk-taking of different firms. The mean of Size is 22.36, with a maximum of 25.87 and a minimum of 20.06, and a median of 22.22, indicating relatively small differences in the size of sample companies. The statistical results for the remaining control variables are consistent with existing research.

4.2 Main results

To verify the impact of ESG rating disagreement on corporate risk-taking, this paper runs regressions based on model (1). Table 2 presents the results of the benchmark regressions of this paper, all of which control for year and industry fixed effects to exclude the effects of macroeconomic environment and industry-specific factors on the results. The results show that the coefficient of ESG rating disagreement (Disagreement) on firm risk-taking (Risk1 and Risk2) is significantly positive. This result is highly statistically significant, indicating that the effect of ESG rating disagreement on firm risk-taking is highly robust and reliable. Specifically, the coefficients on Risk1 and Risk2 are 0.787 and 1.486, respectively, indicating that for each unit increase in ESG rating disagreement, Risk1 and Risk2 increase by 0.787 and 1.486 percentage points, respectively. This finding further suggests that ESG rating disagreement enhances firms' risk-taking.

4.3 Robustness analysis

4.3.1 alternative measures.

To ensure the robustness of the regression results, this paper replaces the explanatory variables with the unstandardized standard deviation of the ratings of the four ESG rating agencies (Disagreement1) (Christensen et al. 2022 ). Columns (1) and (2) of Table  3 Panel A show the regression results after replacing the explanatory variables, and the coefficients are all significantly positive at the 1% level, proving the robustness of the paper's findings.

In addition, the paper also replaces the explanatory variables with the standard deviation (Risk3) of adjusted Roa (Adj_Roa) using a rolling calculation of the five-year (t-2, t + 2) observation time period, and column (3) of Table  3 Panel A reports the results of the regression using Risk3 as an explanatory variable, with coefficients of Disagreement being significantly positive at the 1% level, and the regression results again demonstrate that corporate ESG rating disagreement can enhance corporate risk-taking.

4.3.2 Logarithmic transformation

In order to ensure the robustness of the regression results, logarithmic transformations are applied to the Risk1, Risk2 and Disagreement variables to reduce the influence of extreme values. According to Panel B in Table  3 , it can be seen that the estimated values after the logarithmic transformation are basically consistent with the original results, which again verifies the robustness of the conclusions.

4.3.3 Quantile regression

In order to investigate whether the relationship between ESG rating disagreement and corporate risk-taking is affected by the high or low level of risk-taking, this paper respectively conducts quantile regressions at the 25th, 50th, and 75th quantile of corporate risk-taking. The results, as shown in columns (1)—(3) of Table  3 Panel C, show that the coefficients of Disagreement are significantly positive in the quantile regressions, which indicates that ESG rating disagreement is beneficial in promoting corporate risk-taking for both firms with higher and lower risk-taking. The results further enhance the robustness of the findings of this paper.

4.4 Endogenous test

4.4.1 instrumental variable.

Firms with high risk-taking tend to engage in more innovative and complex operations, which may result in having more disclosures and more detailed ESG reports. In this case, different rating agencies may have more data and different interpretations when assessing the ESG performance of these firms, leading to increased disagreement in ESG rating results. On the other hand, different rating agencies have different assessments of the ESG performance of the same firm, and this rating disagreement itself can raise concerns in the market and among management. To cope with this uncertainty, firms may adopt more aggressive risk management strategies to further increase corporate risk-taking. Between the explanatory variables and the interpreted variables there may be a problem of bidirectional causality. To mitigate the potential impact of endogeneity issues on regression results, the study employed the average value of ESG rating disagreement for each company in the same year in the industry (IV1) and the average of the ESG rating disagreement of all listed companies in the province where the company is incorporated in the same year for each company (IV2) as instrumental variables (Ghoul et al. 2011 ; Benlemlih et al.  2018 ). Two-stage least squares (2SLS) estimation was utilized for endogeneity testing. The reason for selecting IV1 as an instrumental variable is that the ESG rating disagreement of a listed company at a certain point in time is also affected by the average characteristics of individuals in the same industry, which satisfies the correlation condition of the instrumental variable. Moreover, the average value of ESG rating disagreement of a company in the same industry at a certain point in time will not directly affect the corporate risk-taking of the company in the current period, which satisfies the exogeneity condition of the instrumental variable, and the same is true for IV2.

Columns (1) to (3) of Table  4 Panel A report the first and second stage regression results of the two-stage least squares (2SLS), with the Disagreement coefficient remaining significantly positive. In order to examine the validity of the two instrumental variables, this paper mainly makes the Kleibergen-Paap rk LM statistic to test the under-recognition problem, uses the Cragg-Donald Wald F statistic to test the weak instrumental variable problem, and uses the Hensan J statistic to test the over-recognition problem, and the results show that IV1 and IV2 do instrumental variable results are valid.

4.4.2 Propensity score matching (PSM)

Considering that ESG rating disagreement may stem from differences in other company characteristics, such as company size, leverage, and other related variables, and these differences may also impact the level of enterprise risk-taking. This study aims to conduct propensity score matching by using propensity scores, ensuring that companies with similar or identical background characteristics serve as controls. This approach minimizes interference from other characteristic differences, such as company size and leverage. Therefore, this article employs PSM (propensity score matching) to match the samples, followed by regression analysis on the matched samples. After PSM propensity score matching, some of the samples were unable to find a matched control group, resulting in a reduced sample size, but the effect of confounders can be reduced and the internal validity of the study can be improved through PSM propensity score matching.

First, ESG rating disagreement are respectively divided into "High" and "Low" groups based on the median, assigned values of 1 and 0. Subsequently, all control variables are used as covariates for 1:1 nearest neighbor matching. Table 4 Panel B column (1) (2) reports the regression results based on the sample after PSM matching, and it can be found that the coefficient of Disagreement is still significantly positive at the 1% level, suggesting that after controlling for differences in other characteristics of the firms, ESG rating disagreement still raises the risk-taking of the firms, which is consistent with the findings of the previous study.

4.4.3 Increase in individual fixed effects

In order to further control for the possible omission of firm fixed factors that do not change over time on the regression results, this paper adds a firm-level fixed effects model to the regression. In other words, the "firm + time + industry" fixed-effects model replaces the "industry + time" fixed-effects model in the benchmark regression. Panel C in Table  4 reports the regression results of ESG rating disagreement and risk-taking with the addition of the firm-level fixed effects model, and it can be found that Disagreement is still significantly positively correlated with Risk1 and Risk2 at the 1% level, which demonstrates that the results of this paper's research are not due to the omission of certain explanatory variables that do not change over time.

4.4.4 Lagged explanatory variables

The previous period of the endogenous variable is not correlated with the current period error term, so one period lag of the endogenous variable can be considered as a substitute for the endogenous variable in the current period. In addition, this paper uses the one-period and two-period lagged values of ESG rating disagreement as dependent variables to mitigate the endogeneity problem. The Panel D results in Table  4 show that the regression coefficients of the explanatory variable Disagreement are significantly positive for both one-period and two-period lags, which again confirms the robustness of the results of this paper.

4.5 Mechanism test

The previous results indicate that ESG rating disagreement can enhance corporate risk-taking, while the role mechanism behind this enhancement has yet to be systematically empirically examined. Based on the theoretical analyses in the previous paper, this paper will start from the two paths of information asymmetry and financing constraints to examine the mechanism of ESG rating disagreement to enhance corporate risk-taking and to clarify the linkages that exist between the mechanism channels.

4.5.1 Information asymmetry

Share price synchronization (SYNCH) is an important indicator of the degree of information asymmetry in a company. When SYNCH is low, it can indicate that the correlation between stock prices is low and the price of each stock is more influenced by its idiosyncratic information, which means that the degree of information asymmetry of the company is relatively low. When the information asymmetry of the company is low the transparency of corporate information is higher and investors are more likely to obtain accurate and comprehensive information. And investors in the market are more inclined to invest in companies with open and transparent information and relatively controllable risks. Increased investor trust and stability will lead to less market uncertainty for firms, and therefore firms' risk-taking will increase. In this paper, we refer to the study of Gul et al. ( 2010 ) and construct the information transparency data based on share price synchronization (SYNCH) to measure the degree of information asymmetry of firms.

The regression results in Table  5 Panel A show that the estimated coefficients of Disagreement on SYNCH are significantly negative and the estimated coefficients of SYNCH on firm risk-taking are all significantly negative after including SYNCH in the model regression. This indicates that ESG rating disagreement can effectively enhance corporate risk-taking by reducing the degree of information asymmetry.

4.5.2 Financing constraints

When enterprises have obvious financing constraints, the limited nature of resources will force management to choose low-risk and low-yield investment projects, which puts the enterprise's willingness to take risks at a low level. And corporate ESG rating disagreement provides investors with incremental information by reducing the degree of information asymmetry, so it can attract more investors and financial institutions to pay more and more attention to the ESG performance of enterprises, and be willing to provide more favorable financing conditions for enterprises with diversified sustainability performance, thus alleviating the problem of financing constraints of enterprises. This also provides sufficient resources for managerial investment and enhances corporate risk-taking. Drawing on Zhang & Wang ( 2013 ), this paper constructs the corporate financing constraint index FC as a mediating variable, Footnote 1 and a larger FC indicates a stronger financing constraint.

In the first-stage regressions, as shown in the regression results in column (1) of Table  5 Panel B, the estimated coefficients of Disagreement on FC are all significantly negative, suggesting that ESG rating disagreement is able to alleviate corporate financing constraints. In the second stage of the regression, as indicated in the theoretical analysis section, ESG rating disagreement is able to reduce the level of firms' information asymmetry and is likely to further affect firms' financing constraints. In other words, the mechanism variable SYNCH not only directly affects corporate risk-taking, but also indirectly affects corporate risk-taking through the FC variable. Therefore, this paper simultaneously includes FC and SYNCH as endogenous variables in the model for testing. The results in columns (2) and (3) of Table  5 Panel B show that while controlling for SYNCH, the effect of FC on corporate risk-taking remains significant, suggesting that ESG rating disagreement can enhance the degree of corporate risk claiming by alleviating financing constraints. At the same time, SYNCH is still significantly negative, indicating that ESG rating disagreement can both directly enhance corporate risk-taking by alleviating financing constraints and indirectly enhance corporate risk-taking by influencing corporate financing constraints through the channel of reducing the degree of information asymmetry, and there is a progressive relationship between the two channels of action.

4.6 Further analysis

In the previous section, it was analyzed that ESG rating disagreement can further mitigate managers' overly conservative behavior driven by private interests by improving the quality of disclosure and the transparency of corporate operations. The reduction in agency costs allows management to take more into account the interests of the firm's stakeholders when making investment decisions, further enhancing the firm's risk-taking. The degree of risk-taking by a firm usually depends on the degree of agency conflict within the firm. Therefore, this paper further analyzes whether high or low agency costs of firms can influence the relationship between ESG rating disagreement and corporate risk-taking.

In this paper, we use the administrative expense ratio (AC1) and asset turnover ratio (AC2) to measure agency costs. Footnote 2 The higher the administrative expense ratio and the lower the asset turnover ratio, the higher the agency cost. This paper draws on Tang et al. ( 2024 ) to construct a dummy agency cost variable, which is equal to 1 if the firm's AC1, AC2 is higher than the median, and 0 otherwise. The results are shown in Table  6 . In columns (1) and (3), with the addition of the cross-multiplier term(AC1* Disagreement), the coefficient of the interaction term is significantly positive, indicating that there is a positive moderating effect of agency costs on the relationship between ESG rating disagreement and corporate risk-taking. As the agency costs increase, the positive effect of ESG rating disagreement on corporate risk-taking gradually increases. Similarly, in columns (2) and (4), the coefficients of the interaction terms are significantly negative after the addition of the cross-multiplier term(AC2* Disagreement), which indicates that the positive impact of ESG rating disagreement on corporate risk-taking gradually diminishes as agency costs decrease.

4.7 Heterogeneity analysis

4.7.1 nature of company ownership.

The nature of an enterprise's property rights affects the motivation for an enterprise's ESG rating. SOEs (state-owned enterprises) pay more attention to policy factors and social impacts in ESG practice, and likewise face higher public pressure and social expectations, while non-SOEs (non-state-owned enterprises) are more concerned with economic returns. SOEs are relatively more likely to obtain support from governments and financial institutions due to political affiliation, unlike non-SOEs. In summary, the enhancement effect of ESG rating disagreement on SOEs' corporate risk-taking is expected to be small. In this paper, the group regression method is used to test this, and the relevant results are presented in Table  7 Panel A. The regression coefficient of Disagreement in the state-owned enterprises group (SOE = 1) is significantly smaller than that in the non-state-owned enterprises group (SOE = 0). To further test the difference in coefficients between groups, this paper uses Fisher's Permutation test, sampling 1000 times, and obtains p-values for the difference in coefficients between groups of 0.01 and 0.016, which are both significant at 5% level. Thus, compared to state-owned enterprises, the enhancement effect of ESG rating disagreement on corporate risk-taking is more significant for non-state-owned enterprises.

4.7.2 Company size

Firm size reflects the concentration of allocable resources that a firm possesses, with larger firms having more capital and higher levels of ESG disclosure quality, while also facing smaller external financing constraints. In contrast, smaller firms are likely to have poorer ESG disclosure quality and typically face higher financing constraints. However, due to the large number of small and medium enterprises, their role in environmental sustainability is crucial (Haq et al.  2023 ). Faced with the pressure of financing constraints, the incremental information generated when smaller firms disclose more ESG information can satisfy the requirements of investors and financial institutions, thus further enhancing their risk-taking. Therefore, it is expected that the enhancement effect of ESG rating disagreement on firm risk-taking is greater for small-sized firms. In this paper, the natural logarithm of the firm's fixed assets measures the firm's size. A dummy variable for firm size, Size1, is constructed to sample the mean value of the firm's firm size. Firms whose size is larger than the sample mean are set to 1 to represent large-scale firms, and firms whose size is smaller than the sample mean are set to 0 to represent small-scale firms. Panel B of Table  7 reports the group regression results, and the regression coefficients of Disagreement in the large firms’ group (Size1 = 1) are not as significant as the coefficients in the small firms’ group (Size1 = 0). To further test the difference in coefficients between groups, this paper used Fisher's Permutation test sampling 1000 times and obtained p -values for the difference in coefficients between groups of 0.000 and 0.000, which are significant at 1% level. Thus, compared to large firms, the enhancement effect of ESG rating disagreement on corporate risk-taking is more significant for small firms.

4.7.3 Company age

Young firms typically lack the credit history, reliable financial track record, and asset collateral required by traditional sources of financing (Tang et al. 2024 ). The disclosure resulting from ESG rating disagreement broadens young firms' access to financing and makes it easier for them to obtain start-up and growth capital, thereby enhancing their ability to pursue higher-risk growth opportunities. As a result, the enhancing effect of ESG rating disagreement on firm risk-taking is greater for young firms. In this paper, we use the firm's year of incorporation to measure the firm's age and construct a dummy variable for firm age, Age, which samples the mean value of the firm's age. Firms whose age is greater than the sample mean are set to 1 to represent mature firms, and those whose age is less than the sample mean are set to 0 to represent young firms. Panel C in Table  7 reports the group regression results, and the regression coefficients of Disagreement in the young firms’ group (Age = 0) are more significant and larger than the coefficients in the mature firms’ group (Age = 1). To further test the difference in coefficients between groups, this paper used Fisher's Permutation test with 1000 samples, which yielded p -values of 0.005 and 0.004 for the difference in coefficients between groups, both significant at 1% level. Therefore, the ESG rating disagreement of young firms is more effective in enhancing corporate risk-taking than mature firms.

5 Conclusion

This paper selects Chinese A-share listed companies in Shanghai and Shenzhen from 2011 to 2020 as samples to empirically test the impact of ESG rating disagreement on corporate risk-taking and its influence channels, and obtains the following research conclusions:

First, the greater the disagreement of ESG ratings of a company, the higher the enhancement of risk-taking. This conclusion holds even after replacing the variables, quartile regression, propensity score matching, instrumental variables method, and other tests. Second, the mechanism test finds that ESG rating disagreement increases the level of corporate risk-taking by reducing information asymmetry and alleviating corporate financing constraints. Third, the moderating effect analysis reveals that higher internal agency costs positively affect the enhancement of corporate risk-taking by ESG rating disagreement. Fourth, the heterogeneity analysis finds that the enhancing effect of ESG rating disagreement on corporate risk-taking is better for non-state-owned firms, small-scale firms and young firms.

Based on the results derived from this paper, the following recommendations are made: First, ESG institutions should enhance the diversity of ESG rating standards by considering a wider range of factors. The standards should include different regions, industries, and cultural backgrounds to assist companies in comprehensive risk assessment and management. Second, the government should strengthen regulation on information disclosure and increase regulatory efforts on listed companies. Establishing stricter information disclosure regulations for ESG information is necessary. Related institutions should clearly define requirements and standards for ESG information disclosure, intensify the verification of ESG information, and enhance disclosure transparency. Thirdly, enterprises should develop a distinctive Chinese ESG rating standard system that combines international rules with local characteristics, drawing on advanced international experiences. These policy recommendations aim to foster a more sustainable and transparent business environment in China by addressing the identified implications of ESG rating disagreement on corporate risk-taking.

The process of constructing the FC index can be added to Appendix A .

The administrative expense ratio (AC1) is to use the ratio of administrative expense to main business income to measure the agency costs such as management in-service consumption and improper expenditure, the higher the management expense ratio, the higher the agency costs between shareholders and management; the asset turnover ratio (AC2) is to use the ratio of operating income to total assets to measure the agency costs such as inefficient operation or laziness of the management from the point of view of output, so a high asset turnover ratio is associated with a lower agency cost.

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Liyan Dai, Ph.D. in Economics, Professor and Ph.D. Supervisor at the School of International Economics and International Relations, Liaoning University, China. Jingjing Wang, postgraduate at the School of International Economics and International Relations, Liaoning University, China.

2023 Basic Research Projects of Liaoning Provincial Department of Education (JYTMS20230759).

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The FC index is constructed as follows:

The three variables of company size, company age, and cash dividend payment rate are standardized according to the year, and the listed companies are ranked according to the mean values of the standardized variables (in ascending order), and the upper and lower quartiles are taken as the cut-off points of financing constraints, respectively, to determine the dummy variable of financing constraints, OUFC, and the listed companies with a quartile greater than 66% are defined as the low financing constraints group and OUFC = 0, and the listed companies with a quartile less than 33% are defined as the high financing constraints group and OUFC = 1.

Logit regression is performed on model (5) to fit the probability P of occurrence of financing constraints of enterprises in each year and define it as the financing constraints index FC (taking the value between 0 and 1), the larger FC is, the more serious the financing constraints problem of enterprises is.

where size denotes the size of the firm's assets, the natural logarithm of total assets; lev denotes the firm's financial leverage, gearing = total liabilities / total assets; CashDiv represents the cash dividends paid out by the firm during the year; MB: the firm's market-to-book ratio = market value / book value; NWC: net working capital = working capital—money funds – short-term investments; EBIT is earnings before interest and taxes; and ta is total assets.

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Dai, L., Wang, J. The impact of ESG rating disagreement on corporate risk-taking: evidence from China. DESD 2 , 18 (2024). https://doi.org/10.1007/s44265-024-00041-6

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Received : 06 February 2024

Revised : 28 July 2024

Accepted : 08 August 2024

Published : 01 September 2024

DOI : https://doi.org/10.1007/s44265-024-00041-6

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