The Impact of ESG Performance on Audit Risk : An Analytical Inquiry into the Underlying Causes of Discrepancies between Theory and Prior Domestic Research
Asian Tax Journal Vol. 27 No. 2 (2026), pp. 231-267
Abstract
This study investigates the reasons for the conflicting results between theoretical expectations and prior domestic research regarding the relationship between ESG performance and audit risk (audit hours and audit fees), and empirically verifies whether these differences stem from the maturity of the domestic ESG system. Using a sample of 3,849 firm-year observations from KOSPI and KOSDAQ-listed companies (excluding financial firms) from 2012 to 2024, we utilized ESG ratings from the Korea Institute of Corporate Governance and Sustainability (KCGS). The analysis period was divided into the introduction phase (2012-2019) and the transition phase (2020-2024), and OLS regression analysis with a time-lag model was conducted. Robustness checks were performed by controlling for size effects, firm fixed effects, difference-in-differences, and winsorizing the top and bottom 10% of the sample. The results show a significant positive relationship between ESG performance and both audit hours and audit fees for the entire sample period. However, the interaction term between ESG performance and the transition phase dummy (Post20) was significantly negative for both dependent variables. This suggests that as the ESG system matures and the reliability of ESG disclosure and the quality of evaluations improve, auditors have begun to gradually recognize and reflect ESG performance as a factor that reduces audit risk. These findings were consistent in additional analyses of large firms with total assets of 500 billion KRW or more and in robustness tests using winsorized samples, strongly supporting the structural changes driven by institutional maturity. By empirically presenting the temporal structure of the ESG system—introduction, transition, and maturity—this study explains the causes of discrepancies in prior research and suggests that the early establishment of K-ESG disclosure standards and mandatory disclosure can contribute to enhancing the reliability of ESG information and improving audit efficiency.
Keywords
- ESG Performance
- Audit Risk
- Audit Fees
- Audit Hours
- ESG Transition Phase
Related Articles
The Effect of Earnings－based Compensation on Audit Fee and Audit Hour：Focusing on the Role of Audit Committee
24(6) 59-81
Effect of Audit Plan by Position of Auditor on Audit Hour and Audit Fee
23(5) 267-291
The Determinants of the Difference between Standard Audit Hours and Actual Audit Hours
22(4) 97-127
The Effect of Smoothing of GAAP ETRs on Audit Fees and Audit Hours
22(3) 89-131
Audit Review and the Change of Audit Quality
22(2) 133-160