Green Finance Policy, Financial Risk, and Audit Quality: Evidence from China

Forthcoming at European Accounting Review

41 Pages Posted: 4 Aug 2022

See all articles by Yunlin Tian

Yunlin Tian

University of Wollongong

Xiaofei Pan

University of Wollongong

Date Written: July 29, 2022

Abstract

Using the green finance policies (GFPs) in China as a shock to capital allocation, we find that the implementation of GFPs improves audit quality for green firms. Specifically, green firms are likely to receive favorable audit opinions, pay lower audit fees, and generate higher-quality financial reports after the implementation of GFPs. When examining the mechanisms through which GFPs affect audit risk for green firms, we find that green firms are likely to experience lower financial risks and have access to more bank loans at a lower cost after the implementation of GFPs. Further analysis shows that the main results are more pronounced when GFPs are better enforced, where auditors face more government intervention, and where firms are financially constrained. Overall, we document that GFPs decrease financial risk for green firms and have a positive spillover to auditors by mitigating audit risk.

Keywords: Green finance policy, Audit opinion, Audit fee, China

JEL Classification: G11, G2, G3

Suggested Citation

Tian, Yunlin and Pan, Xiaofei, Green Finance Policy, Financial Risk, and Audit Quality: Evidence from China (July 29, 2022). Forthcoming at European Accounting Review, Available at SSRN: https://ssrn.com/abstract=4176599

Yunlin Tian

University of Wollongong ( email )

Northfields Avenue
Wollongong, New South Wales 2522
Australia

Xiaofei Pan (Contact Author)

University of Wollongong ( email )

Northfields Avenue
Wollongong, New South Wales 2522
Australia

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