Do auditors respond to stringent environmental regulation? Evidence from China’s new environmental protection law
Huifeng Xu and
Economic Modelling, 2021, vol. 96, issue C, 54-67
Stringent environmental regulation can impact corporations in both positive and negative ways. However, how external auditors respond to the changes in environmental regulation, and alter their assessment of the audit and client environmental risk accordingly, remains underexplored. This study exploits the promulgation of China’s new Environmental Protection Law (EPL) as an exogenous shock, and adopts a difference-in-differences approach to examine the effect of environmental regulation on audit fees. We find that the new EPL increases environmental and audit risk for heavy-polluting firms, to which auditors charge higher audit fees for compensation. The impact of environmental regulation on audit fees is stronger for firms with low-quality environmental disclosure, those in regions with strong regulation and legal enforcement, and those without political connections. Overall, our findings indicate that stringent environmental regulation can generate extra costs and risks for firms and their external auditors.
Keywords: Environmental regulation; Audit fees; Environmental risks (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:96:y:2021:i:c:p:54-67
Access Statistics for this article
Economic Modelling is currently edited by S. Hall and P. Pauly
More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().