Climate change disclosure performance and audit fees: evidence from Australia

Abstract

Purpose

This study aims to examine the relationship between climate change disclosure performance (CCDP) and audit pricing. The moderating effect of corporate governance characteristics on that relationship is also investigated.

Design/methodology/approach

Using a sample of top 300 Australian Securities Exchange listed non-financial firms over the period 2008–2019, this study investigates the association between CCDP and audit fees. The findings are robust to a difference-in-difference test thereby alleviating potential endogeneity concerns.

Findings

CCDP is found to be significantly positively related to external auditor fees.

Research limitations/implications

The findings show some important implications for firm management, regulators, investors and auditors. This study presents empirical evidence that climate change, as a factor of external risk, influences audit fees.

Practical implications

Firms with governance structures characterized by larger more independent boards, larger audit committees and audit committees with a higher level of independence significantly moderate the relationship between CCDP and audit fees.

Social implications

Investors’ demand for firm transparency and disclosure of information regarding the risks of climate change, effects and opportunities has increased significantly over the past decade, as these factors could have a significant effect on valuation and investment decisions.

Originality/value

Importantly, stakeholders need to be aware of the costs of climate change, the quantification of climate change impacts and how firms address climate change in their business risk management processes. This study quantifies the impact of CCDP on auditor risk assessments via audit fees.