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Do Auditors Applaud Corporate Environmental Performance? Evidence from China

Author

Listed:
  • Xingqiang Du

    (Xiamen University)

  • Wei Jian

    (Xiamen National Accounting Institute)

  • Quan Zeng

    (Xiamen University)

  • Yingying Chang

    (Xiamen University)

Abstract

This study examines the influence of corporate environmental performance on the propensity that auditors issue modified audit opinions and further investigates the moderating effects of internal control and greenwashing. Using a sample of Chinese listed firms, our findings reveal that corporate environmental performance is significantly negatively associated with modified audit opinions, suggesting that auditors applaud environmentally friendly firms. Moreover, internal control reinforces the negative association between corporate environmental performance and modified audit opinions, but greenwashing attenuates the negative effect of corporate environmental performance on modified audit opinions. The findings are robust to various sensitivity tests, and our conclusions are still valid after controlling for the potential endogeneity. Additional tests reveal that (1) corporate environmental performance is negatively associated with modified audit opinions only for firms without audit opinion shopping and (2) corporate environmental performance is significantly negatively associated with both earnings management and audit fees.

Suggested Citation

  • Xingqiang Du & Wei Jian & Quan Zeng & Yingying Chang, 2018. "Do Auditors Applaud Corporate Environmental Performance? Evidence from China," Journal of Business Ethics, Springer, vol. 151(4), pages 1049-1080, September.
    • Handle: RePEc:kap:jbuset:v:151:y:2018:i:4:d:10.1007_s10551-016-3223-6
    DOI: 10.1007/s10551-016-3223-6
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