The Impact of ESG Performance on Audit Fees: Evidence from Chinese Listed Companies

Amid growing global emphasis on ecological sustainability, ESG metrics have emerged as crucial indicators of corporate sustainability performance. This study examines the audit fee implications of environmental, social and governance factors by analyzing longitudinal data from A-share companies listed on China’s Shanghai and Shenzhen stock exchanges (2016-2022). Utilizing a double fixed effects regression approach, the empirical results demonstrate that superior ESG performance is associated with lower audit fees. The analysis indicates that enhanced ESG disclosure and implementation significantly reduce external audit pricing. These findings suggest that robust ESG performance may decrease perceived audit risks, thereby leading to cost savings in the auditing process. The study employs rigorous econometric methods to establish this inverse relationship between ESG factors and audit service charges. Specifically, enterprises with superior ESG performance demonstrate lower audit costs, which can be attributed to three key mechanisms: increased information disclosure quality. Based on the empirical findings, this study proposes two policy recommendations aimed at supporting corporate ESG advancement and enhancing audit quality. These suggestions are designed to help firms overcome existing challenges in sustainable development practices while strengthening financial oversight mechanisms: enterprises should further develop and improve ESG-related systems and ESG information disclosure mechanisms. Auditors should improve their use of ESG information in their audits.