Adverse Climate-Related Incidents and Audit Pricing: International Evidence

ABSTRACT We examine the impact of negative news coverage about firm-specific climate change-related incidents on audit fees. Using a dataset of publicly traded firms, both U.S. and non-U.S., from 2000 to 2018, we find that audit fees for companies experiencing this negative coverage increase significantly. Cross-sectional tests reveal that the severity, influence, and frequency of these adverse incidents further increase audit fees, whereas factors such as engaging a Big 4 auditor or long auditor tenure mitigate these effects. Additionally, we find that this relation is stronger in countries with well-defined positions regarding climate change. Finally, we find no discernible changes in going concern options, the likelihood of restatements, and bankruptcy probability following these incidents. Overall, our results highlight the substantial influence of climate-related reputation risk on auditors and their work globally. Data Availability: The data used in this study were sourced under license from KLD, Audit Analytics, World Bank, RavenPack, and RepRisk, so they are not publicly available. However, the data are available from the authors upon request and with permission of the proprietary owners. JEL Classifications: Q54; H83; G32.