Inhibition or Inducement: ESG Rating Changes and Earnings Management – Based on the perspective of external supervision

From a dynamic perspective, this paper examines the impact of ESG rating changes on earnings management in China. The results show that ESG rating changes can restrain earnings management. The impact mechanism is achieved by increasing the attention of institutional investors and analysts. Furthermore, the inhibition effect of ESG rating changes on earnings management is more pronounced in mature enterprises, enterprises in heavily polluting industries, enterprises in regions with high marketization level. Our research reveals the importance of ESG rating and the cautionary effect of ESG rating changes and provides implications for the sound development of the capital market.