The Relative Role of Firm Incentives, Auditor Specialization, and Country Factors as Antecedents of Non-financial Audit Quality

This paper examines the antecedents of non-financial audit quality in the novel setting of sustainability assurance (SA). We proxy SA quality by a content analysis of the information disclosed in approximately 1,200 publicly available SA statements issued by a panel of G500 global firms in the period 2005-2013. Our findings indicate that a higher emphasis on stakeholder engagement and executive compensation schemes linked to sustainability targets are significant internal client incentives for enhanced levels of SA quality. Our study also confirms the importance of supply-side factors, such as auditor competence and auditor specialization, in explaining the heterogeneity of (non-financial) audit quality. SA quality appears to be further strengthened if a country's institutional environment privileges the enforcement of a legal infrastructure aimed at the protection of social and environmental dimensions of corporate practices. Our results suggest that the complement view of governance mechanisms proposed by Doidge, Karolyi, and Stulz (2007) applies in this emergent non-financial auditing market