Does the green credit policy improve audit fees? Evidence from Chinese firms

Using panel data for Chinese listed firms from 2009 to 2015, this research examines the impact of the green credit policy on the audit fees of heavily polluting firms by adopting a difference-in-difference (DID) model. The results show that the green credit policy increases the audit fees of heavily polluting firms, suggesting that auditors can perceive the risks imposed by the green credit policy on heavily polluting firms. Mechanism tests reveal that the implementation of the green credit policy increases audit fees by increasing the financing cost and reducing the loan maturity. Further research shows that the positive effect is more significant in regions with stronger regulatory environments and higher trust, and among firms without political connections and audited by the top-ten domestic audit firms. The Chinese government should actively encourage third-party financial institutions to participate in firms' environmental governance.