ESG performance and audit pricing: the moderating effect of family firm status

Purpose This study aims to examine the relationship between environmental, social and governance (ESG) performance and audit fees among Indian firms, while investigating the moderating roles of firm size and auditor type. The study also seeks to understand how the environmental, social, and governance dimensions of ESG influence audit pricing differently. Design/methodology/approach The study employs panel regression analysis on a sample of 268 Indian firms over the period from financial year 2012–2013 to 2021–2022. Firm size and auditor type are incorporated as moderating variables to analyze their influence on the relationship between ESG performance and audit fees. Findings The results reveal a significant negative relationship between ESG performance and audit fees, primarily driven by the social and governance pillars. In contrast, environmental performance does not have a significant effect. This negative association is stronger for larger firms and those audited by Big Four auditors, suggesting that better ESG performance leads to lower audit fees. Practical implications The findings hold significant implications for corporate governance, auditors and policymakers. Firms aiming to reduce audit costs should prioritize strengthening social and governance practices, as these factors significantly impact audit pricing. Regulators in emerging markets can leverage these insights to refine ESG disclosure norms, ensuring greater transparency and risk assessment efficiency. Originality/value This study is original in its exploration of the differential impacts of ESG pillars on audit fees, an area where limited research exists, particularly in the context of emerging markets like India. By demonstrating that social and governance factors significantly drive the negative relationship between ESG performance and audit fees, this paper fills a critical gap in understanding how specific ESG dimensions influence audit pricing. Additionally, it advances the literature by examining how auditor type, firm size and auditor industry expertise and independence moderate this relationship. These findings provide fresh insights into how organizational characteristics and auditor expertise shape the ESG–audit fee dynamic, offering a more comprehensive understanding of the intersection between ESG performance and audit practices.

The ESG concept, which covers the dimensions of corporate environment, society, and corporate governance, has promoted the transformation of corporate goals from pursuing maximum self-interest to balancing environmental, social, and corporate governance values. The vast majority of current research focuses on how improving corporate ESG performance can reduce audit fees, and there is little literature specifically studying the relationship between ESG performance and audit fees for energy industry companies. This article takes energy-listed companies from 2018 to 2022 as samples to analyze the impact of ESG performance and its environmental, social, and corporate governance dimensions on audit fees in the energy industry. At the same time, this study explores whether ESG performance and its environmental, social, and corporate governance dimensions have an intermediary mechanism for audit fees through green innovation capabilities, supply chain integration management, and shareholder equity, as well as the moderating effect of media attention on the relationship between ESG performance, environmental, social, and corporate dimensions and audit fees. Research has found that: (1) the improvement of ESG performance, environmental performance, social performance, and corporate governance performance of energy companies cannot reduce audit fees; (2) Green innovation capability and supply chain integrated management play an intermediary role between corporate ESG performance and audit fees, supply chain integrated management and shareholder equity play an intermediary role between corporate environmental performance and audit fees, green innovation capability and supply chain integrated management play an intermediary role between corporate social performance and audit fees, and green innovation capability plays an intermediary role between corporate governance performance and audit fees; (3) Media attention has played a positive moderating role in the impact of corporate ESG performance and environmental dimensions on audit fees. The research has improved the ESG performance of energy industry enterprises in specific industries and the relationship between their performance in the environmental, social, and governance dimensions and audit fees. This will further promote energy enterprises to practice ESG concepts and achieve sustainable development.

[Purpose] This study analyzes the impact of ESG (Environmental, Social, and Governance) performance on the audit efficiency. Rather than separately examining the input factors (audit hours and audit fees) and output factors (audit quality) related to auditing, we empirically analyze how ESG activities, which are becoming increasingly important for the long－term survival and social responsibility of companies, affect the efficiency of external audits by simultaneously considering both the input and output factors needed to achieve the same level of audit quality. [Methodology] Using Data Envelopment Analysis (DEA), we measure audit efficiency and evaluate individual firms’ overall ESG performance as well as their respective E (Environmental), S (Social), and G (Governance) performance using the ratings provided by the Korean ESG Standards Institute. By focusing on companies listed on KOSPI and KOSDAQ markets, we analyze the relationship between ESG performance and audit efficiency through multiple regression analysis and entropy balancing techniques. [Findings] The results indicate that higher ESG performance tends to lead to lower audit efficiency. This phenomenon is interpreted as the complexity of corporate structures increasing due to ESG－related activities, which in turn requires external auditors to exert greater audit effort. However, in the case of industry－specialized auditors, this reduced efficiency was found to be statistically significantly mitigated, suggesting that auditors with higher industry expertise contribute to more effective auditing. [Implications] This study examines the impact of ESG information on auditors' audit procedures in a context where the need for ESG information assurance is emerging. It suggests that external auditors need to consider the influence of ESG on corporate risk not only to achieve audit quality but also to enhance audit efficiency.

Non-technical summary The research paper studies business sophistication, tax revenue policies, and ESG (Environmental, Social, and Governance) performance across 105 Belt and Road Initiative (BRI) countries spanning from 2013 to 2021. Key insights from the study underscore a positive association between business sophistication and ESG performance. This suggests that organizations leveraging advanced knowledge and innovation are better positioned to implement effective ESG strategies. Moreover, higher tax revenue is linked to better ESG, underlining a commitment to sustainability within the business landscape. Notably, Information, Communication, and Technology (ICT) emerges as a pivotal catalyst in augmenting ESG performance, particularly when integrated with business sophistication and tax revenue mechanisms. Technical summary This study examines the relationship between business sophistication, tax revenue policies, and ESG (Environmental, Social, and Governance) performance in 105 Belt and Road Initiative (BRI) countries from 2013 to 2021, focusing on the moderating role of Information, Communication, and Technology (ICT). Using advanced econometric methods like Two-Stage Least Squares (2SLS), two-step Generalized Method of Moments (GMM), and fixed-effect regression, the research also considers factors such as microfinance institutions, commercial bank financing, and the COVID-19 pandemic. The findings reveal a significant positive link between business sophistication and ESG performance, indicating that companies with advanced knowledge and innovation are more likely to implement successful ESG policies. Higher tax revenue is also positively correlated with ESG improvements, reflecting support for sustainability. ICT is crucial in enhancing ESG performance, especially when combined with business sophistication and tax revenue. Microfinance and commercial banking are vital in promoting ESG practices in BRI countries. Despite a temporary decline in ESG performance due to COVID-19, the study predicts a post-pandemic resurgence, emphasizing the need to foster an innovation culture for sustainable development. Social media summary There is a positive association between business sophistication, tax revenues, microfinance, ICT, and commercial banking, which are key drivers of better ESG performance in BRI countries.

Agency Problems, Auditing, and the Theory of the Firm: Some EvidenceAuthor(s): Ross L. Watts and Jerold L. ZimmermanSource: Journal of Law and Economics, Vol. 26, No. 3, (Oct., 1983), pp. 613-633Published by: The University of Chicago PressStable URL: http://www.jstor.org/stable/725039Accessed: 29/06/2008 23:14

Purpose – This study aims to examine the impact of audit quality on ESG performance with media coverage as a moderating variable in companies listed on the Indonesia Stock Exchange from 2020 to 2023 Design/methodology/approach –This study is a causal research utilizing a quantitative approach. The population for this research includes all companies in the listed on the Indonesia Stock Exchange (IDX) for the period 2020-2023. The sampling method employed is purposive sampling. Findings – the result of this study find that audit quality, as proxied by the Big Four, does not have a significant impact on ESG performance while as proxied by the audit fees has positive effect on ESG performance. Media coverage as moderating variable does not moderate the relation between the big four and the audit fees on ESG performance. Originality/value – This study provides a novel contribution to the literature on audit quality and media coverage in relation to ESG performance First, it enriches the existing literature on audit quality and media coverage, which remains limited in emerging markets, particularly in Indonesia, by utilizing a measurement approach that differs from similar studies. Second, this research broadens the examination of media coverage which has been widely studied but has produced diverse results. Research limitations/implications – The results of this study indicate that the big four do not affect ESG performance, but audit costs do, and media coverage does not moderate the relationship between the three. The limited generalizability of the sample and research period in this study may provide an opportunity for further research. Future studies could explore a broader and specific range of industries, longer time periods, or different geographic regions to enhance the generalizability of the findings and provide deeper insights into the relationship between these factors and ESG performance. Keywords: ESG performance; audit quality; big four; audit fees; media coverageArticle Type: Research Paper

Purpose This study first assesses the significant potential relationships between environmental, social and governance (ESG) performance (ESGP), sustainable products (SUPR) and their outcomes [i.e. audit fees (AUFE), salaries and wages of sustainability committee members (SWSM) and total training costs (TTC)] in the context of developed countries. More deeply, the presence of a sustainability committee (SUSC) is considered as the moderating component for some relationships in the research model. Design/methodology/approach The research sample of 1,086 listed companies from G7 countries was selected during the period 2014–2023. The maximum likelihood structural equation modeling approach was used to assess the complex relationships between the research variables. The authors used a two-stage evaluation method consisting of testing (70% of sample) and validation (30% of sample) to examine the optimality of the variables in the research model. Findings The combined results from the two phases showed that all four SUPR types had a direct positive impact on ESGP. ESGP showed an additional mediating role in the relationship between the four SUPR types and their outcomes (i.e., AUFE, SWSM and TTC). In addition, SUSC showed a significant moderating role on the SUPR–ESGP nexus and the ESGP–AUFE nexus. However, the study results did not record the moderating effect of SUSC on the SUPR–AUFE nexus. Research limitations/implications This study emphasizes the need for holistic strategies that integrate sustainability across all business operations. This requires companies to move beyond superficial greenwashing and adopt genuine ethical practices. Our paper confirms the increasing scrutiny on ESG factors, leading to lower AUFE and higher SWSM or TTC for companies engaging in sustainable practices. However, it also suggests that robust sustainability committees can mitigate this cost increase by ensuring transparency and effective ESG implementation. Companies must view sustainability as an investment, understanding the value of dedicated committees in navigating the complexities of ESG reporting and reaping its potential financial and reputational benefits. Originality/value This paper presents a compelling case for proactive sustainability governance. This study serves as a crucial roadmap for businesses striving to balance the scales of profitability and responsible business conduct.

A growing body of research suggests that the composition of a firm’s board of directors can influence its environmental, social and governance (ESG) performance. In the banking industry, ESG performance has not yet been explored to discover how a critical mass of women on the board of directors affects performance. This paper seeks to fill this gap in the literature by testing the impact of a critical mass of female directors on ESG performance. Other board characteristics are accounted for: independence, size, frequency of meetings and Corporate Social Responsibility (CSR) committee. We use fixed effects panel regression models on a sample of 108 listed banks in Europe and the United States for the period 2011–2016. Our main empirical evidence shows that the relationship between women on the board of directors and a bank’s ESG performance is an inverted U-shape. Therefore, the critical mass theory for banks is not supported, confirming that only gender-balanced boards positively impact a bank’s performance for sustainability. There is a positive link between ESG performance and board size or the presence of a CSR committee, while it is negative with the share of independent directors. With this work, we stress the key role of corporate governance principles in banks’ ESG performance, with relevant implications for both banks and supervisory authorities.

The contradictory impact of ESG performance on corporate competitiveness: Empirical evidence from China's Capital Market

With the continuous promotion of the construction of beautiful China and ecological civilization, the concept of sustainable and green development has become increasingly popular. In recent years, enterprises' environmental social and governance (ESG) performance has received widespread attention in China. This paper selects panel data of A-share listed companies in Shanghai and Shenzhen from 2011 to 2020 and uses a two-way fixed-effects model to explore the relationship between ESG performance of listed companies and audit fees. Robustness and endogeneity tests of the empirical structure are performed by replacing explanatory variables and regressing explanatory variables with a one-period lag. The effect of firm heterogeneity characteristics on the relationship between the two is further examined through subsample regressions according to the nature of enterprises and audit institutions. We find a strong negative association between ESG performance and audit fees, meaning that better ESG performance of firms in China leads to lower audit fees. Also, it is tested that the negative effect of ESG performance on audit fees is more significant when the firm is a non-state owned firm and when audited by Big Four accounting firms. The empirical results of this paper will well enrich the study on the impact of ESG performance on firms and broaden the research on the factors influencing audit fees.

PENGARUH BIAYA AUDIT TERHADAP KUALITAS AUDIT DAN DETERMINAN BIAYA AUDIT

Does hypercompetition leave any room for corporate social responsibility (CSR) and how would we test this empirically? Although the majority of CSR scholars stress that firms can profit from CSR initiatives, how competition affects a firm’s CSR effort or environmental, social and governance (ESG) performance remains largely understudied. Based on the theory of hypercompetition and the slack resources perspective, I propose some thoughts on how hypercompetitive industry conditions, such as a low environmental munificence, may affect a firm’s ESG performance. Hypercompetition can also create a resource allocation tension, where firms must choose between focusing on increasing their competitive actions or seeking new growth opportunities through CSR activities. Consequently, hypercompetition can polarize industries with regard to their ESG performance, where many high and low ESG-performers may appear compared to middle ESG-performers. However, the current data limitations of firms’ CSR data make it difficult to accurately measure the impact of hypercompetition on firms’ ESG performance.

Purpose This paper aims to empirically assess the effect of hospitality firms’ digital dynamic capabilities (DDC) on their corporate digital responsibilities (CDR) and the subsequent impact on their environmental, social and governance (ESG) performance. Specifically, it examines how CDR practices shape ESG digitization and performance in the hospitality industry. Design/methodology/approach The authors collect cross-sectional data via the online survey platform, gathering responses from 257 hotel firms across 42 countries and estimate the structural paths using partial least-squares (PLS) structural equation model. To reduce unobserved heterogeneity for robustness, the authors additionally implement finite mixture PLS (FIMIX-PLS), supported by a post hoc power analysis conducted through G*Power. Findings The results indicate that the three elements of DDC – digital sensing, digital seizing and digital reconfiguring – positively affect substantive and symbolic CDR of hospitality firms. Both CDRs simultaneously contribute positively to firms’ ESG digitization, whereas their direct effect on ESG performance is found to be insignificant. Given the positive impact of ESG digitization on ESG performance, this indicates that ESG digitization acts as a mediator, bridging the impact of both CDRs on ESG performance. Thus, DDC elements enhance CDRs, which, in turn, influence ESG performance indirectly through ESG digitization. Research limitations/implications The empirical support for the interconnected relationship between DDC, CDR and ESG performance provides hospitality and tourism managers with the latest understanding of the mechanism by which they can enhance sustainability performance. Originality/value This study addresses a significant gap in the prior literature by investigating how substantive and symbolic CDR practices differently impact ESG outcomes in the hospitality industry. From a dynamic capability perspective, the study integrates the concept of DDC with ESG and highlights their role in enhancing the effectiveness of CDR practices.

PurposeThis study aims to examine how corporate social responsibility (CSR) strategy impacts environmental, social and governance (ESG) performance in public listed firms across the Association of Southeast Asian Nations (ASEAN)-5 countries. Additionally, it examines the interaction effect of family ownership, board gender diversity and board skills on the relationship.Design/methodology/approachThis study used a fixed-effect panel regression to analyse 1,212 observations collected from ASEAN-5 public listed firms, covering the years 2017–2022. To address the endogeneity problem, this study used a two-step GMM.FindingsThe findings indicate that the ESG performance of firms in ASEAN-5 countries is significantly and positively influenced by their CSR strategy, suggesting that robust CSR strategies lead to superior ESG performance. Family ownership is found to weaken the positive impact of CSR strategy on ESG performance, indicating that family firms prioritize CSR less. Furthermore, female and skilful boards are more likely to implement effective CSR strategies, as reflected in their improved ESG performance.Practical implicationsThis study urges firms, particularly family-owned firms, to enhance their CSR strategy. It also recommends that policymakers integrate gender diversity and a variety of skills into corporate boards, possibly by revising regulatory frameworks and corporate governance guidelines.Originality/valueThe results of this study are novel and specifically tailored for ASEAN firms. To the best of the authors’ knowledge, this study is among the first to examine the roles of board skills, gender diversity and family ownership in the relationship between CSR strategy and ESG performance in the ASEAN context.

Purpose This study aims to examine the influence of celebrity CEOs on the ESG (environmental, social and governance) performance of Chinese A-share listed companies from 2009 to 2021. It also aims to understand how the public image of CEOs, amplified by media attention, affects organizational ESG outcomes and to explore whether these effects vary across ownership structures and gender. Design/methodology/approach The analysis leverages a comprehensive data set of A-share listed companies and uses rigorous econometric methods to investigate the relationship between celebrity CEOs and ESG performance. The results are consistent and robust, as validated by a series of robustness tests, including one-period lag, propensity score matching and a shortened sample period. In addition, the study explores the moderating role of media attention and conducts subgroup analyses to examine variations across ownership types and CEO gender, further reinforcing the reliability of the results. Findings The results show that celebrity CEOs positively influence ESG performance, with media attention amplifying this relationship. Further analyses reveal that the impact of celebrity CEOs is more pronounced in nonstate-owned enterprises (NSOEs) and among female celebrity CEOs. These findings are robust across alternative testing methods, confirming the consistency of the observed relationships. Originality/value This study provides empirical evidence on the role of celebrity CEOs in driving ESG performance and highlights media attention as a critical amplifier. By uncovering the unique advantages of female celebrity CEOs and the distinctive effects in NSOEs, the research reinforces the literature on leadership and corporate sustainability. It offers practical implications for corporate governance and emphasizes the importance of leveraging CEO influence to enhance ESG outcomes in the Chinese context.