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Does ESG rating divergence affect the disclosure behavior of key audit matters?

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  • Li, Jiaojiao
  • Zhang, Ying

Abstract

Divergent assessments of a firm's ESG performance by different rating agencies can amplify market perception gaps and create conflicts among stakeholder objectives. Against this backdrop, this study examines the economic consequences of ESG rating divergence from the perspective of auditors, using a sample of Chinese A-share listed companies from 2017 to 2023. The findings show that ESG rating divergence has a positive impact on the disclosure of Key Audit Matters (KAMs). Mechanism tests indicate that corporate digitalization and reputational risk partially mediate this relationship, revealing the channels through which ESG rating divergence influences KAM disclosure via digital transformation and reputation-driven factors. Heterogeneity analyses further demonstrate that the effects of ESG rating divergence on KAM disclosure vary significantly by asset intensity and industry characteristics. Compared to asset-intensive and non-manufacturing firms, manufacturing and non-asset-intensive firms place greater emphasis on standardized KAM disclosure.

Suggested Citation

  • Li, Jiaojiao & Zhang, Ying, 2025. "Does ESG rating divergence affect the disclosure behavior of key audit matters?," International Review of Economics & Finance, Elsevier, vol. 103(C).
    • Handle: RePEc:eee:reveco:v:103:y:2025:i:c:s1059056025007543
    DOI: 10.1016/j.iref.2025.104591
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