Environmental policy and audit pricing

Authors

Monika K. Rabarison, The University of Texas Rio Grande ValleyFollow
Ibrajim Siraj, Long Island University
Bin Wang, Marquette University

Document Type

Article

Publication Date

3-29-2024

Abstract

This paper examines the effect of environmental policy stringency (EPS) on audit pricing. By exploiting the exogenous variation in environmental policies across 26 countries, we find that firms in countries with more stringent environmental policies incur lower audit fees. The inverse association is more pronounced in common law countries, in countries with a higher level of public enforcement of regulations and in countries with more investor protection. The lower audit fees are also more prominent for firms that are followed by more analysts and firms that have a greater institutional ownership. Furthermore, we find that firms in countries with strong regulations are better and more innovative at managing environmental risk, which implies that better environmental performance of the firms following stronger regulations could lower business risks and thus decrease audit fees. Overall, our findings suggest that compliant firms benefit from EPS.

Comments

Original published version available at https://doi.org/10.1111/jbfa.12799

Recommended Citation

Rabarison, M.K., Siraj, I. and Wang, B. (2024) ‘Environmental policy and audit pricing’, Journal of Business Finance & Accounting, 51(9–10), pp. 2820–2847. Available at: https://doi.org/10.1111/jbfa.12799

Publication Title

Journal of Business Finance & Accounting

DOI

https://doi.org/10.1111/jbfa.12799