The Effects of Enterprise Digital Transformation and ESG Performance on Audit Fees in China

[Purpose]As companies worldwide are increasingly moving toward digitalization, the impact of digital transformation on corporate management and audit risk is drawing greater attention. Simultaneously, ESG performance has become an increasingly important management priority as part of a company’s sustainable development strategy. This study explores the relationship among corporate digital transformation, ESG performance, and audit fees, with a particular focus on whether ESG performance can moderate the relationship between digital transformation and audit fees. [Methodology]This study conducted an empirical analysis using a sample of A－share listed companies on the Shanghai and Shenzhen Stock Exchanges in China from 2009 to 2022. Audit fees were measured using actual audit fees and abnormal audit fees. Corporate digital transformation was measured by adding one to the frequency of digital transformation－related terms provided by the CSMAR digital transformation module, then converting this value into a logarithm. ESG performance was measured using the Huazheng ESG ratings. [Findings]First, a higher level of corporate digital transformation is associated with increased audit fees. Second, a higher level of corporate ESG performance tends to decrease audit fees. Third, through its moderating effect, ESG performance mitigates the effect of digital transformation on increasing audit fees. [Implications]From an auditor’s perspective, this study suggests that evaluating audit risk related to digital transformation, as well as developing appropriate computerized auditing techniques, training, and education, are urgent tasks. Additionally, the study demonstrates that ESG management activities can help mitigate the increased risks faced by companies and auditors due to digital transformation.