Audit Quality and CSR Decoupling: An International Perspective

Abstract

CSR decoupling practices undermine the legitimacy of corporate social responsibility (CSR) reports, prompting a desire to use legitimacy-enhancing techniques, like external assurance (BIG4) of CSR reports. Our study uses the international sample of 34 countries from 2006 to 2019, and results indicate that good audit quality (BIG4) can significantly reduce the CSR performance and disclosure gap (CSR decoupling practices). Further, these results still hold even when using the alternate proxies of CSR decoupling (i.e., SUM) and audit quality (i.e., audit fee), and they emerge mainly in unqualified audit reports. Additionally, we use the GMM and PSM regression analysis to control endogeneity concerns, and the results are still consistent. Overall, our findings suggest that BIG4 auditors assure the legitimacy and dependability of their auditees' non-financial disclosures (CSR disclosure), as evidenced by their stringent auditing practices. Finally, our study's key implications are that companies are prone to a lower level of CSR decoupling when their external auditor is one of the BIG4 auditing firms. Our findings are particularly apparent to scholars, regulatory agencies and corporate practices.