ESG performance and audit pricing: the moderating effect of family firm status

Abstract

Purpose This study aims to analyze whether ESG performance is associated with audit fees. It also investigates the moderating effect of family firm status on that relationship. Design/methodology/approach The sample included companies from the STOXX 600 index. The authors collected data from 492 non-financial companies between 2012 and 2023, resulting in a total of 3,831 firm-year observations. Data were sourced from the Refinitiv Eikon database and analyzed using panel data models based on fixed-effects regression. The findings are robust to generalized method of moments estimation, thereby alleviating concerns about potential endogeneity. Findings The findings show that audit fees are significantly lower for firms with higher ESG scores, suggesting that sustainability performance tends to reduce auditors’ risk exposure, resulting in lower effort and/or risk premiums. Nonetheless, results show that the estimated coefficient on the moderating variable is positive, contrary to the predicted negative direction. That is, auditors could perceive ESG performance as attempts to conceal managerial opportunistic behavior in family firms. Research limitations/implications The authors’ evidence underscores that managers’ engagement in positive CSR practices can reduce firm risks and increase firm transparency, while family control moderates this nexus. Originality/value This study contributes to the literature on corporate social responsibility and audit quality by investigating the negative association between ESG performance and audit fees. It provides empirical evidence on the moderating effect of family–firm status on this association using an extensive sample of European-listed firms.