Do Auditors Applaud Corporate Environmental Performance? Evidence from China

Xingqiang Du (), Wei Jian (), Quan Zeng and Yingying Chang
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Xingqiang Du: Xiamen University
Wei Jian: Xiamen National Accounting Institute
Quan Zeng: Xiamen University
Yingying Chang: Xiamen University

Journal of Business Ethics, 2018, vol. 151, issue 4, No 13, 1049-1080

Abstract: Abstract This study examines the influence of corporate environmental performance on the propensity that auditors issue modified audit opinions and further investigates the moderating effects of internal control and greenwashing. Using a sample of Chinese listed firms, our findings reveal that corporate environmental performance is significantly negatively associated with modified audit opinions, suggesting that auditors applaud environmentally friendly firms. Moreover, internal control reinforces the negative association between corporate environmental performance and modified audit opinions, but greenwashing attenuates the negative effect of corporate environmental performance on modified audit opinions. The findings are robust to various sensitivity tests, and our conclusions are still valid after controlling for the potential endogeneity. Additional tests reveal that (1) corporate environmental performance is negatively associated with modified audit opinions only for firms without audit opinion shopping and (2) corporate environmental performance is significantly negatively associated with both earnings management and audit fees.

Keywords: Corporate environmental performance; Modified audit opinions; Internal control; Greenwashing; Going concern opinion; Audit opinion shopping; Earnings management; Audit fees (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (26)

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DOI: 10.1007/s10551-016-3223-6

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