A Research On The Relationship Between ESG Quality And Audit Fees Of Listed Companies

With the continuous development of China’s market economy,the business of enterprises is becoming more and more complex,and the transparency of information is reduced,which brings more uncertainty to investors.External audit plays an increasingly important role.Since 2015,Chinese government departments and regulators have issued a series of laws,regulations and strategies that are conducive to the development of ESG,such as the new Environmental Protection Law in 2015,the green financial policy in 2020,the goal of "carbon peak,carbon neutral",and the high-quality development goal,to promote the further improvement of the domestic ESG information disclosure system.The report of the 2022 China ESG Development and Innovation White Paper shows that in 2022,under the influence of negative factors,the domestic ESG public offering fund will still develop strongly,and the management scale of the ESG public offering fund will be close to 300 billion yuan,an increase of nearly 50 billion yuan over the same period last year.It can be seen that ESG is increasingly valued by regulators and investors.Therefore,this paper wants to study the relationship between ESG and audit fees and the influencing factors of this relationship.By reviewing the existing literature at home and abroad,it is found that domestic and foreign scholars have not studied the relationship between ESG and audit fees in the heavily polluted industries,and there are few studies on the effect of policies,while there is a gap in the research on the relationship between ESG and audit fees adjusted by auditors’ industry expertise.This paper takes the listed companies in the heavy pollution industry of Shanghai and Shenzhen A-shares from 2010 to 2021 as the sample,takes the implementation of China’s new Environmental Protection Law in 2015 and the new Audit Standards in 2017 as the research entry point,and based on the theory of information asymmetry and the theory of audit cost structure,conducts analysis through normative research and empirical research methods.The empirical results show that in the heavy pollution industry,the audit fees of enterprises with better ESG quality are lower.After the promulgation and implementation of the new environmental protection law,there was a significant negative correlation between the ESG quality of enterprises and audit fees,but there was no significant relationship between the two before the implementation.The new auditing standards also have such a regulatory effect.Before the new auditing standards are issued and implemented,ESG cannot significantly affect the audit fees,while after the implementation,ESG significantly reduces the audit fees,which means that these two policies positively regulate the negative correlation between ESG quality and audit fees.The regulatory effect of the two policies is more obvious in regions with good legal environment and enterprises with strong financial constraints.Further research shows that there is an alternative relationship between auditor industry expertise and ESG quality in reducing audit fees,that is,when employing firms or auditors with more industry expertise,the effect of reducing audit fees through ESG behavior is worse.The result of grouping test shows that this substitution relationship is also more significant in regions with good legal environment and enterprises with strong financing constraints.The innovation points of this paper are as follows:First,it focuses on the heavy pollution industry,caters to China’s environmental protection initiatives and the higher requirements of the market for external audit,and to some extent supplements the research results of the impact of macro policies on micro enterprises.Second,it explores the relationship between the audit industry expertise,ESG and audit fees in the middle view,and examines the impact of the legal environment where the enterprise is located and the degree of financing constraints faced by the enterprise on the regulatory effect.It enriches the research conclusion on the relationship between the audit industry expertise,ESG and audit fees in a new dimension,and has reference significance for the government to build a good legal environment and cultivate the audit industry expertise through cooperation.Third,the market combination method is selected to measure the industry expertise at the firm level,which reflects the importance of the accounting firm as a whole to achieve industry expertise,and enriches the research conclusions of the auditor’s industry expertise.