Analysis shows a U-shaped effect of ESG performance on audit pricing, indicating key variables like information asymmetry. The findings emphasize the role of internal controls.
The substantial impact of corporate Environmental, Social, and Governance (ESG) performance, predominantly measured by non-financial metrics, on external auditors is investigated in this paper. Using a sample of Chinese-listed companies from 2011 to 2021, we examine how auditors respond to corporate ESG performance from the perspective of audit pricing. The findings reveal a U-shaped, non-linear relationship between corporate ESG performance and audit pricing. Enhancing ESG performance significantly reduces audit pricing up to a certain threshold, but the impact diminishes as performance continues to improve. Internal control quality and the degree of information asymmetry play pivotal moderating roles within this U-shaped relationship; higher-quality internal controls and lower information asymmetry contribute to flattening the U-shaped curve. Mechanism analysis illustrates that ESG performance influences audit pricing by mitigating financial and operational risks. This paper supplements the understanding of ESG’s impact on audit pricing from a non-linear perspective, offering valuable insights for companies actively engaged in ESG practices.
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Li et al. (2025) studied this question.
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