Does audit quality moderate the ESG–corporate financial performance relationship? Empirical evidence from India

Purpose This study aims to examine the moderating impact of audit quality (AQ) on the relationship between environmental, social and governance (ESG) disclosure and financial performance (FP) in the Indian context. Design/methodology/approach The study sample consists of 218 Indian firms, for which Credit Rating Information Services of India Limited has published the ESG scores. Panel data estimation technique is used to examine the direct and moderating impacts. Furthermore, the two-stage least square estimation technique is used for robustness checks. Findings The study finds a positive impact of ESG score and its components on FP. The findings support the positive “revisionist” hypothesis. The results demonstrate that AQ significantly moderates the relationship between ESG scores and FP. It implies that the impact of ESG disclosure on FP is considerably greater for the Big-4. Originality/value The study enriches the existing knowledge by providing empirical evidence on the moderating role of AQ on the ESG disclosure and FP relationship. The findings have several policy implications.