Impact of Big Four Audit Firms on Environmental Disclosure in China: Critical Role of Governance and Ownership Structure

As the corporate world has recently been increasingly held accountable for its non-green behaviour, corporate environmental disclosures (CED) are crucial in informing the relevant stakeholders. Among the factors influencing CED, firm auditors play a pivotal role. Our research investigates the impact of Big Four audit firms on corporate environmental disclosure in China. With unique institutional factors and the most significant carbon emissions globally, China provides an exciting and compelling ground for studying this relationship. For this purpose, we use annual firm-level data of A-listed shares on the Shenzhen and Shanghai stock exchanges and employ the Poisson and negative binomial regression models for empirical analyses. Contrary to the common belief that Big Four audit firms lead to improved disclosure quality, we find that they negatively affect environmental disclosure in China. We also investigate the moderating role of corporate governance and ownership structure in this relationship. A high ratio of state ownership, male directors on the board and institutional investor holding worsen the disclosure quality. However, a high ratio of independent directors mitigates this issue. These findings open new avenues for further research and can guide future policy decisions regarding environmental disclosure in Chinese firms. The Big Four audit firms should be more stringent in their operations and supervise public firms regarding environmental disclosures.