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ESG rating divergence and audit fees: Evidence from China

Author

Listed:
  • Ling, Shixian
  • Xia, Hui
  • Liu, Zhangxin (Frank)

Abstract

We investigate the impact of ESG (Environmental, Social, and Governance) rating discrepancies on audit fees using data from A-share companies listed in Shanghai and Shenzhen from 2015 to 2022. We find that ESG rating divergence significantly increases audit fees due to increased information asymmetry, heightened operational risks, and elevated debt costs. External factors like internationalisation and participation in low-carbon initiatives moderate this relationship. Our results, which remain robust to alternative measures and endogeneity checks, provide valuable insights into how ESG performance can influence audit fees and highlight the importance of standardising ESG evaluations for both firms and policymakers.

Suggested Citation

  • Ling, Shixian & Xia, Hui & Liu, Zhangxin (Frank), 2024. "ESG rating divergence and audit fees: Evidence from China," Finance Research Letters, Elsevier, vol. 67(PA).
    • Handle: RePEc:eee:finlet:v:67:y:2024:i:pa:s1544612324007797
    DOI: 10.1016/j.frl.2024.105749
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    ESG rating divergence; Audit fee; Information asymmetry; Business risks; Cost of debt capital;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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