Purpose This study aims to examine the effect of voluntary supply chain transparency on audit fees in China’s non-mandatory disclosure setting, investigate the mechanisms through which transparency reduces audit costs and test the heterogeneity of this effect under dual preconditions of information demand and environmental capability. Design/methodology/approach This study uses a sample of Chinese A-share listed companies from 2007 to 2024. It constructs a firm-level supply chain transparency measure based on the number and business proportions of the top five suppliers and customers disclosed. To account for unobserved time-invariant industry heterogeneity and common annual shocks, the authors use a two-way fixed-effects model including industry and year fixed effects. The authors acknowledge this specification does not address time-varying omitted variables or reverse causality. Accordingly, the authors complement the authors’ baseline analysis with instrumental variable (IV), propensity score matching (PSM) and Heckman two-step estimation to further mitigate endogeneity concerns. Findings The authors find that firms with higher supply chain transparency pay significantly lower audit fees, and this effect holds for both supplier and customer disclosures. Mechanism tests indicate that the reduction in audit fees stems from information-environment synergy, lower information-acquisition costs and streamlined audit processes. The effect is more pronounced when information demand is high and environmental capability is strong. Originality/value This study extends the literature on audit fee determinants from the unique perspective of supply chain transparency. It advances understanding of how disclosure affects audit pricing and informs the broader literature on information disclosure and audit pricing.
Chaoya Zhao (Mon,) studied this question.