The Effect of ESG Rating Divergence on Auditor Decisions : Evidence from Abnormal Audit Fees and Audit Opinions

[Purpose] Based on evidence of abnormal audit fees and audit opinions, this study empirically examines the effect of Environment, Social, and Governance (ESG) rating divergence on auditor decision－making and the mechanism of its role in Chinese listed companies. [Methodology] This study employed a sample of Chinese A－share listed companies on the Shanghai and Shenzhen Stock Exchanges from 2016 to 2022, we empirically examined the impact and mechanism of ESG rating divergence on auditor decision－making using the Ordinary Least Squares and Probit models. [Findings] The study found that the greater the ESG rating divergence, the more inclined auditors are to charge abnormally high audit fees and issue non－standard audit opinions; While mechanism tests reveal that ESG rating divergence lead auditors to charge abnormally high audit fees and issue non－standard audit opinions by increasing firms’ business risk and reducing firms’ information transparency. Furthermore, the results reveal that the impact of ESG rating divergence on auditor decisions is more significant for firms with lower reputations and less analyst attention. [Implications] The findings of this study should not only help standardize ESG rating standards and reduce ESG rating divergence but also expand the research boundaries of factors influencing audit decisions. It is instructive to understand how ESG rating divergence affects audit risk and auditor decision－making.