The impact of environmental, social, and governance ratings on corporate innovation: From the perspective of informal institutions

The significance of rating events in capital markets has garnered considerable attention from investors, experts, and academics, with third-party rating agencies being one of the topics. We focus on the impact of environmental, social, and governance (ESG) ratings on corporate innovation and confirm a positive relationship. We also believe that ESG ratings play a governance role as informal institutions in stimulating corporate innovation. The efficacy of ESG ratings in promoting corporate innovation is dependent on a favorable information environment that is devoid of negative influences. We confirm the synergistic effect of ESG ratings with other informal institutions and the substitution effect with formal institutions.