Who cares about your green reputation? Evidence from 'financial watchdogs'

This study investigates the importance of firm-level green reputation on client-side financial watchdogs’ reactions characterized by audit fees and credit ratings. Using a comprehensive sample of US-listed firms over 2007-2020, we find that firms with high environmental reputation risk (ERR) are positively associated with higher audit fees, and they also tend to receive lower credit ratings. We further document that corporate governance emerges as a significant factor moderating the effect of ERR on the responses of financial watchdogs. This highlights the importance of strong governance practices in mitigating the adverse impacts of ERR on audit fees and credit ratings. Overall, our study contributes insights into the importance of green reputation for corporate decision-making from the lens of financial watchdogs.