Investigating the Relationship Between ESG Disclosure Performance and Audit Fees in the Presence of Institutional Ownership: Evidence from Malaysian Listed Firms

Based on the Malaysian market, this study investigates the connection between ESG (environmental, social, and governance) disclosure performance and audit fees and examines whether institutional ownership moderates this relationship. The sample of this study comprises 323 firm-year observations collected from 49 Malaysian publicly listed companies covering 2012 to 2020. Panel data regression is employed to test the hypotheses. The findings indicate a significant positive relationship between ESG disclosure performance and audit fees, suggesting that auditors perceive ESG reporting as increasing audit complexity and risk. Further, institutional ownership strengthens this positive relationship, indicating that sophisticated investors’ monitoring roles lead to more thorough auditing of ESG disclosures. Our primary contribution is resolving mixed findings in prior literature by identifying institutional ownership as a key moderating variable. The findings offer critical insights for Malaysian regulators in designing the ESG verification framework and help companies and investors better understand audit cost drivers. This study highlights the real-world impact of institutional shareholders on corporate governance and raises market awareness of how auditors respond to sustainability disclosures.