This study explores the governance mechanisms of ESG rating divergence in China, focusing on how institutional investors' site visits influence rating disagreements.
Using Chinese A-share data (2015–2022), this study employs a two-way fixed effects model and textual analysis. It addresses endogeneity via travel-friction instrumental variables and examines complementarities with regulatory frameworks.
Site visits significantly reduce ESG rating divergence. Textual analysis reveals that substantive communication depth is the fundamental mechanism that amplifies when investors allocate greater attention to ESG topics during dialogs. Validating the informational proximity hypothesis, site visits uniquely reduce divergence among domestic agencies with no effect on cross-border raters. These governance effects create regulatory complementarities that exhibit strong industry-level spillovers but negligible regional variation and are strengthened by high ownership and stable engagement.
Shifting from corporate disclosure to proactive monitoring, this study proposes the informational proximity framework to explain the domestic-only efficacy of site visits. It establishes substantive communication depth rather than mere occurrence as the definitive driver of ESG rating convergence. Finally, contrasting this synergistic model with resource-constrained enterprises enriches ESG governance theory in transition economies.
