Sustainable development and the rating effects: A strategic categorization approach

With the increasing call for sustainable development, rating agencies of corporate sustainability performance (CSP) have got a good momentum of development all over the world. Different from past studies that utilize stakeholder theory or information economics in explaining rating effects, this study takes a strategic categorization approach to investigate firm responses to CSP ratings of a newly emerging rating agency. Using a sample of listed firms in Japan, our study finds that compared with firms with moderate CSP rating scores, firms with high or low rating scores are more likely to increase their corporate philanthropic contributions, and such an effect is strengthened when the firms have higher levels of foreign ownership. This study contributes to the literature by enriching our understanding of how the rating of a newly emerging rating agency shapes firms' sustainable activities.