Regulation by Rating: Can Market-Based Rating Improve Corporate Non-Financial Performance?

Corporate non-financial performance is increasingly attracting global attention. This study examines whether inclusion in SynTao Green Finance’s ESG rating system affects the non-financial performance of Chinese listed companies. Employing a staggered difference-in-differences framework over the period 2009–2020, we find that market-based ratings significantly improve corporate non-financial performance, a result that holds across a range of robustness checks. The effect operates through a sequence of market responses, ratings raise media attention to rated corporations, which lowers their financing costs and motivates green innovation, thereby aligning economic and social value. In addition, the effect is stronger for corporations in regions with higher marketization and greater fiscal spending on science and technology, and for state-owned enterprises. These findings show how market-based ESG ratings can function as an informal governance mechanism that enhances corporate non-financial performance in emerging markets.