ESG rating divergence and audit fees: Evidence from China

Shixian Ling, Hui Xia and Liu, Zhangxin (Frank)

Finance Research Letters, 2024, vol. 67, issue PA

Abstract: We investigate the impact of ESG (Environmental, Social, and Governance) rating discrepancies on audit fees using data from A-share companies listed in Shanghai and Shenzhen from 2015 to 2022. We find that ESG rating divergence significantly increases audit fees due to increased information asymmetry, heightened operational risks, and elevated debt costs. External factors like internationalisation and participation in low-carbon initiatives moderate this relationship. Our results, which remain robust to alternative measures and endogeneity checks, provide valuable insights into how ESG performance can influence audit fees and highlight the importance of standardising ESG evaluations for both firms and policymakers.

Keywords: ESG rating divergence; Audit fee; Information asymmetry; Business risks; Cost of debt capital (search for similar items in EconPapers)
JEL-codes: G34 M14 M42 Q56 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:67:y:2024:i:pa:s1544612324007797

DOI: 10.1016/j.frl.2024.105749

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