Does ESG Washing Increase Abnormal Audit Fees? Research Based on the Chain Mediating Effects

Xiaoyan Sun (), Yuan Yao and Jie Han
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Xiaoyan Sun: School of Economics and Management, Yantai University, Yantai 264005, China
Yuan Yao: School of Economics and Management, Yantai University, Yantai 264005, China
Jie Han: School of Economics and Management, China University of Geosciences, Wuhan 430074, China

Sustainability, 2025, vol. 17, issue 21, 1-27

Abstract: ESG washing, as an organizational decoupling behavior, refers to enterprises strategically disclosing environmental information to obscure their actual ESG performance, which not only elevates audit risks but also increases uncertainty in audit pricing. Based on a sample of Chinese listed companies from 2014 to 2023, this study introduces excess executive compensation and executive myopia as mediators to investigate the mechanisms through which ESG washing influences abnormal audit fees via chain mediating effects. Additionally, market structure is considered a moderating variable to examine its moderating role within the model. The empirical results demonstrate that ESG washing in listed companies significantly increases abnormal audit fees. Both excess executive compensation and executive myopia exert positive individual mediating effects as well as a chain mediating effect. Furthermore, the moderating effect of market structure attenuates the mediating role of excess executive compensation but amplifies that of executive myopia. This research proposes an integrated framework combining organizational decoupling theory and transaction cost theory, thereby clarifying the underlying pathways through which ESG washing influences abnormal audit fees. The study offers policy implications for government authorities to strengthen ESG regulations, enhance supervisory mechanisms, and promote a more sustainable business environment. In addition, it provides guidance for enterprises in mitigating ESG washing, optimizing audit-related costs, and enhancing their capacity to address ESG challenges, improve corporate governance, and strengthen competitiveness.

Keywords: ESG washing; abnormal audit fees; excess executive compensation; executive myopia; market structure (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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