Carbon emissions and audit fees: Evidence from emerging markets

• Published in: Emerging markets review Vol. 60; p. 101139
• Main Authors: Ding, Xin, Chourou, Lamia, Ben-Amar, Walid
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01-06-2024
• Subjects: Audit fees; Carbon emissions; Climate governance; Climate risk; Emerging markets; Climate risk; Carbon emissions; Audit fees; Climate governance; Emerging markets
• ISSN: 1566-0141; 1873-6173
• DOI: 10.1016/j.ememar.2024.101139

This study investigates whether auditors integrate climate risk into audit pricing. Using a sample of firms from 11 emerging countries, we find that auditors charge higher audit fees for firms with higher carbon emissions. This positive association is stronger for firms audited by Big 4 auditors and that operate in high litigation-risk industries. The effect of climate risk is, however, weaker for firms with board oversight of climate-related issues, verification of carbon emissions, and higher climate governance scores. In additional analyses, we find that the documented impact of climate risk is weaker in emerging countries in comparison to developed ones.
•Auditors charge higher audit fees for firms with higher carbon emissions.•The association is stronger for firms audited by Big 4 auditors.•The association is weaker for firms with better climate governance.•The association is stronger in developed markets compared to emerging markets.•Results are insensitive to a battery of robustness checks.