The Discrepancy in ESG Ratings and Audit Quality

Abstract

The ESG rating system serves as an important reference for assessing corporate sustainability. However, due to discrepancies between rating agencies, the evaluation results exhibit significant variations, which severely undermine the external users’ ability to make comprehensive and objective assessments of companies. In this context, this paper examines the intrinsic relationship between ESG rating discrepancies and audit quality from the perspective of auditors. Using a sample of A-share listed companies from the Shanghai and Shenzhen stock exchanges from 2009 to 2023, the study systematically investigates the impact of ESG rating discrepancies on audit quality and the underlying mechanisms. The findings reveal that ESG rating discrepancies significantly enhance audit quality, primarily through two mechanisms: increased analyst attention and improved internal controls. Heterogeneity analysis shows that the positive relationship between ESG rating discrepancies and audit quality is more pronounced when analysts’ earnings forecast abilities are stronger and when market competition is higher. This study provides empirical evidence on the economic consequences of ESG rating discrepancies, offering decision-making insights for audit firms in developing risk assessment frameworks, and supplying empirical support for regulators in constructing a standardized evaluation system for corporate sustainability criteria.