ESG rating uncertainty and audit quality

Xiaojuan Yang and Mafei Tian

Managerial Auditing Journal, 2025, vol. 40, issue 6, 914-938

Abstract: PurposeThis study aims to examine how ESG rating uncertainty affects audit quality and explains its mechanisms and boundary conditions.Design/methodology/approachTo explore the relationship between ESG rating uncertainty and audit quality in the Chinese market, the authors selected A-share listed companies as the empirical analysis sample. Robust empirical analysis methods, including instrumental variable methods and propensity score matching, were used to ensure result robustness.FindingsThrough empirical research, the authors find a significant positive correlation between ESG rating uncertainty and audit quality. Further mechanism analysis shows that ESG rating uncertainty creates an information effect, improves auditors’ judgment capabilities on risk matters and reduces auditor–client relationship mismatch, ultimately increasing audit quality. The authors explore the boundary conditions of the impact of ESG rating uncertainty on audit quality through information demand and information reception capabilities. The results indicate that when auditors have strong information demand and reception capabilities, the impact of ESG rating uncertainty on audit quality intensifies.Originality/valueThis study enriches the literature by providing empirical evidence on how ESG rating uncertainty affects audit quality, with a focus on the information effect. It explores boundary conditions from the perspectives of information demand and reception capabilities, enhancing the understanding of the economic consequences of ESG rating uncertainty for auditors’ information utilization.

Keywords: ESG rating uncertainty; Audit quality; Information effect; Information demand; Information reception capabilities (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:majpps:maj-10-2024-4547

DOI: 10.1108/MAJ-10-2024-4547

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