The Impact of Climate Information Disclosure on Audit Fees: A Study Based on Principal Component Analysis

Abstract

To investigate the influence of corporate climate information disclosure on audit fees, this study examines the period from 2012 to 2021, focusing on companies listed on the Shanghai and Shenzhen stock exchanges. The research is based on the quasi-natural experiment of the ESG rating disclosure event by SynTao Green Finance in 2015. Firstly, using principal component analysis and a multi-period difference-in-differences model, the study determines the impact of climate information disclosure on audit fees. Robustness tests are conducted using trimming procedures and placebo experiments, which confirm the initial findings. Secondly, building on the previous analysis, the study explores the interaction effects of analyst forecast deviation and the presence of the Big Four audit firms on the relationship between ESG ratings and audit fees. Finally, the research concludes that the disclosure of climate risk information reduces audit fees by mitigating information risk and operational risk for companies. Moreover, this negative impact of climate risk disclosure on audit fees is more pronounced when analyst forecasts are more accurate or when the auditing firm belongs to the "Big Four" group.