Investigating the Effect of Environmental, Social, and Governance Pillars on the Relationship between ESG Performance and Audit Fee Determination in Companies Listed on the Tehran Stock Exchange
Keywords:
Corporate Governance pillar, Social Pillar, Environmental Pillar, ESG Performance, Audit FeesAbstract
Objective: This study aims to examine the impact of overall ESG performance and its Environmental, Social, and Governance pillars on audit fee determination and to clarify the role of each pillar in this relationship among firms listed on the Tehran Stock Exchange.
Methodology: This applied correlational study uses panel data from companies listed on the Tehran Stock Exchange over the period 2011–2023. Multiple regression models were estimated using pooled and panel data approaches in EViews software. Audit fees and abnormal audit fees were employed as dependent variables. The independent variables included the overall ESG score and its Environmental, Social, and Governance components. Control variables such as firm size, leverage, return on assets, auditor size, board characteristics, and ownership structure were incorporated into the models. Stationarity, Chow, Hausman, and Durbin–Watson tests were conducted to ensure the robustness of the estimations.
Findings: The results indicate a significant negative relationship between ESG performance and both measures of audit fees, suggesting that firms with stronger ESG performance incur lower audit costs. The Governance pillar demonstrates a consistently significant negative effect across both specifications, whereas the Environmental and Social pillars exhibit significant effects only in certain models. Overall, the three ESG pillars influence the relationship between ESG performance and audit pricing with varying intensities.
Conclusion: Higher ESG performance is associated with lower perceived audit risk and reduced audit fees. The prominent role of the Governance pillar underscores the importance of effective oversight and internal control mechanisms in audit fee pricing.
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