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The nonlinear impact of ESG performance on audit pricing: Evidence from China

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  • Yajin Li
  • Fei Meng

Abstract

The substantial impact of corporate Environmental, Social, and Governance (ESG) performance, predominantly measured by non-financial metrics, on external auditors is investigated in this paper. Using a sample of Chinese-listed companies from 2011 to 2021, we examine how auditors respond to corporate ESG performance from the perspective of audit pricing. The findings reveal a U-shaped, non-linear relationship between corporate ESG performance and audit pricing. Enhancing ESG performance significantly reduces audit pricing up to a certain threshold, but the impact diminishes as performance continues to improve. Internal control quality and the degree of information asymmetry play pivotal moderating roles within this U-shaped relationship; higher-quality internal controls and lower information asymmetry contribute to flattening the U-shaped curve. Mechanism analysis illustrates that ESG performance influences audit pricing by mitigating financial and operational risks. This paper supplements the understanding of ESG’s impact on audit pricing from a non-linear perspective, offering valuable insights for companies actively engaged in ESG practices.

Suggested Citation

  • Yajin Li & Fei Meng, 2025. "The nonlinear impact of ESG performance on audit pricing: Evidence from China," PLOS ONE, Public Library of Science, vol. 20(9), pages 1-19, September.
    • Handle: RePEc:plo:pone00:0331504
    DOI: 10.1371/journal.pone.0331504
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    1. Wang, Lan & Ding, Xinge & Yang, Yudong & Wu, Ruiyi, 2025. "Corporate environmental performance and bond financing cost: A multi-stakeholder signaling perspective," International Review of Financial Analysis, Elsevier, vol. 106(C).

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