Exploring the ESG–audit fees nexus: insights from Indian firms

Purpose This study aims to examine the relationship between environmental, social and governance (ESG) performance and audit fees among Indian firms, while investigating the moderating roles of firm size and auditor type. The study also seeks to understand how the environmental, social, and governance dimensions of ESG influence audit pricing differently. Design/methodology/approach The study employs panel regression analysis on a sample of 268 Indian firms over the period from financial year 2012–2013 to 2021–2022. Firm size and auditor type are incorporated as moderating variables to analyze their influence on the relationship between ESG performance and audit fees. Findings The results reveal a significant negative relationship between ESG performance and audit fees, primarily driven by the social and governance pillars. In contrast, environmental performance does not have a significant effect. This negative association is stronger for larger firms and those audited by Big Four auditors, suggesting that better ESG performance leads to lower audit fees. Practical implications The findings hold significant implications for corporate governance, auditors and policymakers. Firms aiming to reduce audit costs should prioritize strengthening social and governance practices, as these factors significantly impact audit pricing. Regulators in emerging markets can leverage these insights to refine ESG disclosure norms, ensuring greater transparency and risk assessment efficiency. Originality/value This study is original in its exploration of the differential impacts of ESG pillars on audit fees, an area where limited research exists, particularly in the context of emerging markets like India. By demonstrating that social and governance factors significantly drive the negative relationship between ESG performance and audit fees, this paper fills a critical gap in understanding how specific ESG dimensions influence audit pricing. Additionally, it advances the literature by examining how auditor type, firm size and auditor industry expertise and independence moderate this relationship. These findings provide fresh insights into how organizational characteristics and auditor expertise shape the ESG–audit fee dynamic, offering a more comprehensive understanding of the intersection between ESG performance and audit practices.