HCBE Faculty Articles

Title

Environmental Responsibility, External Assurance, and Firm Valuation

Document Type

Article

Date

11-2018

Publication Title

AUDITING: A Journal of Practice & Theory

ISSN or ISBN

0278-0380

Volume

37

Issue

4

First Page

207

Last Page

233

Description

We provide new evidence in examining whether external auditors price environmental responsibility initiatives when performing the audit of financial statements. We also examine how investors value the firm when environmental initiatives occur in conjunction with higher audit fees. Results show environmental initiatives are positively associated with audit fees, but the extent of this association varies across the five different types of environmental initiatives we consider. We further find that auditors appear to price environmental initiatives due to their risk rather than additional audit effort. While environmental initiatives may be costly from an audit standpoint, investors value (Tobin's Q) firms more highly when environmental initiatives occur in conjunction with higher audit fees. Collectively, our findings imply that auditors price environmental initiatives into the audit and investors value firms more highly when auditors consider this social responsibility.

DOI

10.2308/ajpt-51940

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