Environmental Policy and Audit Pricing

Authors

Monika K. Rabarison, The University of Texas Rio Grande Valley
Ibrahim Siraj, Long Island University
Bin Wang, Marquette UniversityFollow

Document Type

Article

Publication Date

10-2024

Publisher

Wiley

Source Publication

Journal of Business Finance & Accounting

Source ISSN

0306-686X

Original Item ID

DOI: 10.1111/jbfa.12799

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

Accepted version. Journal of Business Finance & Accounting, Vol. 51, No. 9-10 (October-November 2024): 2820-2847. DOI. © 2024 Wiley. Used with permission.

Recommended Citation

Rabarison, Monika K.; Siraj, Ibrahim; and Wang, Bin, "Environmental Policy and Audit Pricing" (2024). Finance Faculty Research and Publications. 165.
https://epublications.marquette.edu/fin_fac/165