ESG rating divergence and audit fees: Evidence from China

We investigate the impact of ESG (Environmental, Social, and Governance) rating discrepancies on audit fees using data from A-share companies listed in Shanghai and Shenzhen from 2015 to 2022. We find that ESG rating divergence significantly increases audit fees due to increased information asymmetry, heightened operational risks, and elevated debt costs. External factors like internationalisation and participation in low-carbon initiatives moderate this relationship. Our results, which remain robust to alternative measures and endogeneity checks, provide valuable insights into how ESG performance can influence audit fees and highlight the importance of standardising ESG evaluations for both firms and policymakers.