The Dilemma of Water Audit System for Chinese Enterprises Under Information Asymmetry: A Study Based on a Three-Party Evolutionary Game

Liyingzi Peng, Wenyue Yu, Kaize Zhang and Ran He ()
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Liyingzi Peng: Excelia Business School, 17000 La Rochelle, France
Wenyue Yu: College of Imaging, Dongguk University, 30, Pildong-ro 1-gil, Jung-gu, Seoul 04620, Republic of Korea
Kaize Zhang: School of Economics and Finance, Hohai University, Nanjing 211100, China
Ran He: Business School, Hohai University, Nanjing 211100, China

Sustainability, 2025, vol. 17, issue 22, 1-24

Abstract: The corporate water use audit system is an important part of implementing China’s strictest water resource management system and building a water-saving society. Since 2009, seven provinces (municipalities/autonomous regions) in China have begun to explore corporate water audits. However, conflicts of interest between the Chinese government, water-using enterprises, and commissioned third-party auditors may lead to the ineffective promotion of the corporate water audit policy. In this paper, we study corporate water auditing behavior from the perspective of information asymmetry, construct an evolutionary game model of the three parties, explore the strategy choices of each party, study the asymptotic stability of the evolutionary stability problem via numerical methods, and analyze the impact of parameter changes on it. The study shows that, firstly, strict governmental supervision plays a key role in promoting the implementation of corporate water audit systems. Incentive subsidies had a positive and direct impact on firms and auditors in the water audit system. Secondly, the higher rent-seeking costs of tripartite audit institutions affect the probability of firms’ participation in rent-seeking. As a social institution, regulation and penalties for firms should be strengthened to reduce the risk of information asymmetry. The results of this study provide insights into the existence of asymmetry problems and possible coping strategies.

Keywords: Enterprise Water Audit System (EWAS); information asymmetry; evolutionary game (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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