Can government environmental auditing and fiscal transparency promote the green development of heavy-polluting firms?

Corporate green development (GD) is critical for realizing China’s double carbon targets, and government environmental auditing is an essential path for supervising the GD behavior of enterprises. However, the effect of government environmental auditing on corporate GD has not been thoroughly investigated, particularly through the path of improving fiscal transparency. This study takes Chinese A-share listed companies in heavily polluting industries from 2011 to 2022 as the sample and uses statistical models to empirically test the effects. The results indicate that government environmental auditing can significantly facilitate corporate GD by improving fiscal transparency. Government auditing functions to checking and preventing environmental pollution issues can promote enterprises’ GD. The function of preventing pollution issues has the most substantial promotion effect. The analysis of regional heterogeneity indicates that government environmental auditing in the western region has the strongest effect. The conclusion of this study provides theoretical support and guidance for strengthening government environmental auditing, improving government fiscal transparency, and promoting the GD of enterprises.


Introduction
Corporate green development (GD), especially for enterprises in heavy-polluting industries, is crucial for realizing China's goals of carbon peak and neutrality (Chen et al 2023).Corporate GD requires the transformation of the development mode from resource-dependent to green innovation-driven, low energy-intensive, and the synergistic development of an enterprise's economic, environmental, and social performance (Li et al 2019a, He et al 2021).Both internal (e.g.corporate green technology innovation) and external factors (e.g.institutional environment and public supervision) are important in promoting corporate GD.To mitigate environmental pollution, reduce natural resource consumption, and promote GD, China has proposed the institutional innovation of government auditing in the environmental field.For instance, natural resource asset accountability auditing of local officials has been implemented in pilot cities in China since 2014 (Zhu et al 2023).
How does government environmental auditing affect corporate GD?What is the path by which government environmental auditing affects corporate GD? Existing studies have investigated the impact of government environmental auditing at the city or province level (Jiang and Tan 2021, Xu et al 2022, Tan et al 2023, Zhang et al 2023a), and found that government environmental auditing has a significant role in promoting green transformation by restraining the behavior of local governments, stimulating ecological technological innovations, and upgrading industrial structure (Wang et al 2023).Vertical management reform of government auditing institutions has a pollutant emission abatement effect (Cao et al 2022).Empirical studies also exist on the impact of government environmental auditing on corporate environmental governance (Chai et al 2022, Wei et al 2023).Natural resource asset accountability auditing is found to be conducive to China's economic development mode transformation and has environmental governance effects for enterprises as well (Huang 2023, Yan et al 2023).
However, few studies have integrated macrogovernment environmental auditing and microenterprise GD into the same framework to explore the intrinsic links between them, and little attention has been paid to the impact of government fiscal transparency.This study makes several contributions to the literature.First, a new perspective on macro-micro docking is based on the economic medical checkup function of government auditing.Second, it examines the mediating effect of government fiscal transparency, which helps explain the influence path of government environmental auditing.Third, combined with the micro characteristics of enterprises, we explored the three functions of government environmental auditing (i.e.checking, settling and preventing environmental pollution issues) and investigated regional differences.
This study provides an in-depth analysis of the effect of government environmental auditing on corporate GD using data from A-share listed firms in the heavy-polluting industry of China from 2011 to 2022.First, we use the fixed-effects model to test the impact of government environmental auditing on the GD of enterprises.Compared to the existing literature (Luo et al 2023, Zhang and Wang 2023), we used direct indicators of corporate GD.Second, we test the mediating role of fiscal transparency using a three-step mediation effect model.Third, robustness tests are conducted to verify the reliability of the results.Further, the three functions of checking, settling and preventing environmental issues in government environmental auditing were analyzed.Finally, this study investigates the heterogeneous implementation efforts and impacts of government environmental auditing in different regions.
The results indicate that government environmental auditing can significantly facilitate corporate GD by improving fiscal transparency.There is heterogeneity among the three functions of government environmental auditing, and the function of preventing pollution issues has the most substantial promotion effect.The analysis of regional heterogeneity indicates that government environmental auditing in the western region has the most significant impact.The conclusions of this study support the government in further strengthening environmental auditing and information disclosure to promote the sustainable and high-quality development of firms.
The remaining sections of this paper is organized as follows.Section 2 presents a literature review.Section 3 presents the theoretical foundation and development of the hypotheses.Section 4 discusses the research methods used in this study.Section 5 presents and discusses the results.Section 6 provides the conclusions and policy implications.

Government environmental auditing
Government environmental auditing has gradually become an essential tool in environmental governance (Ruban and Rydén 2019).At the macro level, government environmental auditing can significantly promote urban green transformation, and this promotion effect shows regional heterogeneity (Wang et al 2023).Government environmental auditing can promote regional GD by improving regional innovation abilities (Zhang and Wang 2023).At the micro level, it can improve the environmental management of enterprises, governments, and institutions; reduce environmental risks and operating costs; and enhance social reputation (De Moor andDe Beelde 2005, Duflo et al 2013).Government environmental auditing can increase enterprises' investments in environmental protection, develop clean and green technologies, and reduce environmental pollution as well (Wang and Wang 2023).As a vital reform measure of environmental audits, the natural resources accountability audit (NAUD) has significant environmental governance effects (Huang 2023, Zhang et al 2023b).

Theoretical foundation and hypotheses development
Encouraging enterprises to carry out GD activities and ensuring the quality of their green transformation is of great significance for promoting sustainable economic and social development (Gan et al 2021).China National Audit Office proposed the immune system theory, pointing out that audit is the 'immune system' of national economic and social operation (Liu and Lin 2012).Audit institutions, as the leading actors in the 'immune system' , can detect problems and risks at an early stage, and then use legal authority more quickly to investigate problems and timely advise the corresponding authority to eliminate these problems.Environmental auditing carried out by the government has a high degree of independence and authority (Rika 2009).It can supervise and inspect the utilization of special financial funds for environmental protection as well as the implementation of environmental protection policies.Previous immune system theories focused on prevention, disclosure, and defense (Jiang and Tan 2021), but now put more emphasis on checking, settling, and preventing functions.Through government environmental auditing, the state can significantly improve corporate environmental governance, which has a multifaceted impact on enterprises' GD.Government environmental auditing can reveal existing problems in resource allocation and utilization through the function of checking problems and urging enterprises to adjust their production and operation modes to reduce resource consumption (Tan et al 2024).
The theory of value-belief-normal holds that, in a system of norms, values, and beliefs constructed by society, an organization's behavior should be compliant, and the organization's value system should be consistent with the social system in which it operates (Suchman 1995).Government environmental auditing helps strengthen compliance pressure of CSR by requiring them to provide data and information on environmental protection and social responsibility, which forces enterprises to take a series of environmental protection measures, such as reducing pollution emissions and improving resource utilization efficiency and waste disposal, thus promoting the GD of enterprises (Li et al 2022b).In addition, to meet audit requirements, enterprises may increase the research and development of environmental protection technology to improve production processes and reduce resource wastage and environmental pollution (Wang et al 2023).Moreover, government environmental auditing has a social-image enhancement effect.Enterprises can enhance their image and reputation in society by actively fulfilling the environmental and social responsibilities required by the government, which has a positive impact on the brand value and market position of enterprises, and can attract more consumers and investors who are concerned about environmental issues (Martin and Moser 2016).Overall, government environmental auditing contributes to realizing green, high-quality, and sustainable economic and social development goals by supervising, motivating, and guiding enterprises to make positive efforts toward environmental protection, social responsibility, and sustainability.Therefore, hypothesis 1 is proposed in this study: H1: strengthening government environmental auditing has a promoting effect on corporate GD.
Improving transparency is an effective measure to resolve social and environmental problems.The disclosure of government environmental auditing results not only increases the transparency of government finance but also encourages audited units to actively take auditing opinions and suggestions and seriously rectify existing problems.According to the theory of public fiduciary responsibility, governments and institutions entrusted with the management and use of public resources are obligated to explain all their activities to the public.Therefore, government environmental auditing reveals environmental protection expenditure, resource utilization, and government financial conditions.They also assessed the effectiveness of government funds on environmental protection programs and reviewed the environmental taxes and related revenues collected by the government through auditing.In addition, government environmental audit reports can provide audit results to the public and the media, enhance public supervision over the government, encourage the government to take more environmental protection measures, and strengthen environmental governance (Sun et al 2019).
On the other hand, according to asymmetric information theory and principal-agent theory, government transparency reduces transaction costs and alleviates agency problems between the government and the public.If the government's environmental expenditure and revenue information are more transparent, it will be more conducive to improving ecological efficiency (Li et al 2017).First, government transparency is conducive to enhancing public trust in the government (Cucciniello et al 2017).A higher level of transparency means that the government's financial expenditure and budget are publicly accessible.Enterprises can more easily predict the support and incentives provided by the government for environmental protection based on the information provided by the government.Second, the disclosure of government environmental protection information reflects the attitude of local governments towards environmental governance, making it easier for enterprises to assess their commitment to and implementation of environmental policies (Sun et al 2019).Strict government information disclosure requirements have made it easier for the public to access environmental information, including environmental accidents, illegal pollution emissions, environmental protests, and new environmental policies (Mena and Waeger 2014).Enterprises can more accurately understand the government's enforcement of environmental regulations and the environmental fines or penalties they may face, facilitating better compliance with environmental regulations.Third, government transparency stimulates green innovation (Feng et al 2023).After understanding the government's environmental innovation incentive policies, enterprises may become more active in green technological innovation.In summary, government environmental auditing, as an essential part of the government management system, can improve fiscal transparency and credibility, which in turn promotes corporate GD.Therefore, H2 is proposed as follows.
H2: government environmental auditing can facilitate enterprise GD by improving government transparency.

Data and variables
This study selects heavily polluting A-share listed firms in China (heavily polluting firms located in 30 provinces, municipalities, or autonomous regions of China, except Tibet, Hong Kong, Macao, and Taiwan) from 2011 to 2022.According to the Notice on the Classification Management List of Listed firm's Environmental Protection Verification Industries1 , 16 heavily polluting industries were selected, including thermal power, steel, cement, electrolytic aluminum, coal, metallurgy, chemical, petrochemical, building materials, paper making, brewing, pharmaceuticals, fermentation, textiles, leather manufacturing, and mining.The data for measuring corporate GD are obtained from the Chinese Research Data Services database, CSR, and annual reports.Government audit data were collected manually from the China Audit Yearbook.The control variables are obtained from the China Stock Market and Accounting Research Database.We collect 12 607 firm-year observations from heavily polluting industries.To avoid the effect of extreme values, we winsorized all continuous variables at the 1% and 99% levels, dropped special treatment (ST) enterprises and observations with too many missing variables, and finally obtained 8910 firm-year observations.
The explanatory variable was corporate GD.GD was measured through text analysis of CSR reports and annual reports.The following six indicators were analyzed: air pollution reduction and governance (GD1); wastewater reduction and governance (GD2); dust and soot governance (GD3); solid waste utilization and disposal (GD4); governance of noise, light pollution, and radiation (GD5); and implementation of cleaner production (GD6).If these indicators are quantitatively disclosed in reports, they take a value of 2; if they are only qualitatively described, they take a value of 1, otherwise 0. The GD value of GD equal to the sum of the values of the six indicators.
The explanatory variable was government environmental auditing (AUD).The government supervises and evaluates environmental management through auditing.Referring to existing research (Wang et al 2023), this study designed an index to measure the intensity of government environmental audits, including audit projects conducted at three levels of audit offices.First, the number of government environmental audit projects carried out by the State Audit Office of China (SAOC) was manually collated from announcements on the official SAOC website.Second, from the China Audit Yearbook, we obtained the number of government environmental audit projects carried out by the provincial (municipal) audit offices and the prefecture-level cities (or districts) audit bureaus.The sum of government environmental audit projects conducted by the three audit office levels was used as an indicator of government environmental auditing (AUD).Considering the lag effect, government environmental audit data lagged for one period.
The mediating variable was government fiscal transparency (Ft).Government environmental auditing plays a management role in promoting government information disclosure and improving government fiscal transparency.Improving government fiscal transparency enables enterprises to understand policy trends and invest in GD.Provincial fiscal transparency scores are taken from the China Fiscal Transparency Report issued by the Shanghai University of Finance and Economics.Since the latest data in the report are as of 2018, the fiscal transparency in 2019 and 2022 was calculated based on the average growth rate of transparency in each province in the past five years.
Referring to existing literature (Zhang et al 2023b), firm-level economic characteristics are selected as the control variables, including leverage ratio (LEV), return on total assets (ROA), firm size (SIZE), firm growth (GROW), board size (BOARD), and the proportion of shares held by the first largest shareholder (TOP1).For macro-level control variables, according to the existing literature (Jiang and Tan 2021), we select the degree of government intervention (Gov), industrial structure (structure), degree of openness (Open), industrialization (Industry), and economic factor (AGDP).In addition, year-fixed effects (YEAR), individual-fixed effects (IND), and province-fixed effects (Pro) were controlled.The definitions and measurements of each variable is shown in table 1.

Statistical model
To test hypothesis 1, model (1) examined the effect of government auditing on corporate GD performance, where GD i,c,t are enterprise GD performance and the subscripts i, c and t represent firm, province, and year, respectively.AUD c,t is government environmental auditing; Control is the control variable shown in table 1; YEAR, IND and Pro are year, individual, and province dummy variables, respectively.ε i,c,t are the error terms, and β 0 is the intercept term.If β 1 is positive, AUD has a promoting effect on GD, and hypothesis 1 is verified.

Descriptive statistics
Table 2 shows that the mean value of GD is 3.295, and the standard deviation is 2.903, indicating a significant difference in enterprise GD.The mean value of AUD is 1.303, the maximum value is 3.258, the minimum value is 0, and the standard deviation is 0.536, indicating large differences in government environmental auditing.The mean value of Ft is 3.855, the maximum value is 5.601, and the minimum value is 0, indicating large differences in fiscal transparency among provinces.

Regression results
Table 3 shows the results of the basic regression.Panels A-C show that the values of adjusted R Square are 0.591, 0.536, and 0.591, respectively, indicating that the models in this study have a good fitting effect and are suitable for subsequent analysis.Moreover, the F values of panels (A)-(C) are all significant at the 1% level, indicating that the experimental accuracy was high.
Panel A shows that the coefficient for AUD is significantly positive, indicating that the improvement in government environmental auditing has a promotional effect on enterprise GD, and H1 is supported.Panel B demonstrates that the coefficient of AUD is significantly positive, indicating that government environmental auditing can promote government fiscal transparency.In Panel C, the coefficient of Ft is 0.166 and is statistically significant.The coefficient of AUD is 0.212, which is statistically significant.Therefore, government environmental auditing can promote cooperate GD by improving government fiscal transparency, supporting H2.Moreover, we substituted AUD with the NAUD of leading officials, which requires local governments to be responsible for ecological environmental protection and natural resource asset management, thus promoting GD of the region (Huang 2023).If NAUD of leading officials was implemented in the cities where the heavy-polluting enterprises are located, NAUD takes the value of 1, and 0 otherwise.The regression results are presented in table 5.The coefficients of NAUD in panels A and B are significantly positive, and the coefficients of NAUD and Ft in panel C are all significantly positive, which indicates that the baseline regression results are reliable.

Heterogeneity analysis
Based on the immune system theory, government environmental auditing has three major functions of economic medical checkup, namely, checking, settling, and preventing environmental pollution issues.First, government environmental auditing discovers and reveals the deviations and errors in the operation of policies in a timely manner and feeds back to policymakers.Through the supervision and revelation of corporate GD, government auditing can discover and solve obstacles hindering corporate GD in a timely manner to promote corporate GD.Second, the function of settling pollution issues refers to the fact that by discovering and punishing illegal and irregular behaviors, government environmental auditing can effectively and continuously promote corporate GD.Third, the function of preventing pollution issues refers to the fact that government auditing can prevent and warn of risky behaviors, detect problems promptly, perceive potential risks, and thus promote GD.
The government audit function for checking pollution issues (AUD1) is measured using the natural logarithm of the amount of money for problems detected by government environmental auditing.The function of settling pollution issues (AUD2) was measured using the natural logarithm of the actual amount of money processed by government environmental auditing.The function of preventing pollution issues (AUD3) is measured using the natural logarithm of the amount of money involved in the case transferred to judicial authorities and other relevant departments.Table 6 shows that the coefficients of AUD1, AUD2, and AUD3 were 0.099, −0.045, and 0.405, respectively.This indicates that the function of preventing has the strongest promotion effect on corporate GD, followed by checking.This is because checking and preventing environmental problems are more effective than settling.The settling function solves pollution issues through punishment, thereby    increasing the economic burden on enterprises and reducing their investments in GD.Considering the differences in economic development and policy support in different regions of China, there may also be variance in the impact of AUD on GD (Zhang and Wang 2023).Consumers in regions with high economic development may have strong environmental awareness and tend to purchase environmentally friendly products, while enterprises intend to prevent pollution and increase investment in environmental protection (Gan et al 7 show that government environmental auditing in the western region has the strongest promoting effect, as the coefficient of AUD is 0.461 and is statistically significant.A possible reason lies in the fact that the western region has relatively backward development in laws and other external regulatory measures than the eastern and central regions; therefore, government environmental auditing as a supervisory system has a more significant impact on corporate GD than other regions.

Conclusions
This study empirically investigates the impact of government environmental auditing on corporate GD using a sample of Chinese A-share listed companies in heavy-polluting industry from 2011 to 2022.The main conclusions are as follows: First, highly intensive government environmental auditing has a positive effect on enterprises' GD, which indicates that government environmental auditing plays a role in environmental supervision and promotes corporate GD.Second, government environmental auditing can promote corporate GD by improving government fiscal transparency.Therefore, government environmental auditing is an effective tool for promoting the openness of government affairs, which is conducive to the GD of enterprises.Third, the function of preventing pollution issues has the strongest promotion effect on corporate GD, as the prevention and warning of issues are more important than settling issues.Fourth, government environmental auditing plays the most significant role in the western region, as its laws and other external regulatory systems are less developed than in other regions, making it easier for government environmental auditing to play a regulatory role.Based on the above results, it is suggested that Chinese governments expand the scale and improve the quality of environmental auditing.The specific policy implications are as follows: First, the Chinese government can expand the scale of government environment auditing by increasing the number of auditing projects, increasing audit frequency, and expanding audit scope.Second, the quality of government environment auditing can be improved by strengthening the training of government auditors, optimizing the audit process and methods, and supervising audit work standards.Third, the checking and preventing functions of government audits should be utilized more thoroughly.Finally, more attention should be paid to the quality improvement of government auditing in the western regions.

2.1. GD
GD is a new development model to protect the ecological environment and realize sustainable development under the constraints of ecological and resource-carrying capacity (Li et al 2019b).The factors affecting corporate GD include internal factors such as organizational structure and green technology development.The external factors include institutional environment, market environment, capital market, and public supervision (Fang et al 2022, Li et al 2022a, Xin et al 2022, Ma et al 2023).Digital transformation, as an internal factor, can accelerate the sustainable development of manufacturing enterprises by increasing ecological technological innovation and investment (Chen et al 2023).Corporate green investment is regarded as part of corporate social responsibility (CSR) and is valued by managers and investors, as it can bring societal benefits (Martin and Moser 2016).In addition, environmental regulations are important external factors affecting the level of corporate GD (Luo et al 2023), government environmental governance (Zhang et al 2023b) and green credit policy, as one of the types of environmental regulation also facilitates high-quality development (Cui et al 2023, Han and Liu 2023, Wu et al 2023).Non-financial disclosure requirements also promote sustainable corporate development (Saini et al 2022).

Table 1 .
Variable definitions and measurements.
tion honors or awards' , 'Facilities for the prevention and control of pollution and other public hazards be designed, constructed and put into operation at the same time as the main project, which is referred to as the "three simultaneous" principle' , 'Carrying out special activities for environmental protection' , 'Carrying out environmental education and training' and 'Having the concept of environmental protection' .The above eight indicators are scored as 1 if these activities are disclosed in the CSR report or annual report and 0 otherwise.The value of the new variable of corporate GD (GDR) equals the sum of the values of the above eight indicators.The results are shown in table 4. The coefficient between AUD and GDR in Panel A and the coefficient between AUD and Ft in Panel B are significantly positive.Moreover, the coefficients of Ft and AUD in panel C are significantly positive, indicating that the baseline regression results are reliable.

Examine the mediating effect of fiscal government transparency in the model (3) Values close indicating fitting of the model with given variables
Notes: * p < 0.1, * * p < 0.05, * * * p < 0.01.

Table 4 .
Robustness tests results: replace the explained variable.

Replace the explained variable with GDR in the model (3) Values close indicating fitting of the model with given variables
Notes: * p < 0.1, * * p < 0.05, * * * p < 0.01.Detailed results of the control variables are presented in table A1 in appendix A.

Table 5 .
Robustness tests results: replace the explanatory variable.

Replace the explanatory variable with NAUD in the model (3) Values close indicating fitting of the model with given variables
Notes: * p < 0.1, * * p < 0.05, * * * p < 0.01.The detailed results for the control variables are presented in table A2 in Appendix A.

Table 6 .
Impact of different functions of government auditing.

Impact of AUD3 functions of government auditing Values close indicating fitting of the model with given variables
Notes: * p < 0.1, * * p < 0.05, * * * p < 0.01.The detailed results for the control variables are listed in table B1 in appendix B.

Western region regression results Values close indicating fitting of the model with given variables
* p < 0.05, * * * p < 0.01.The detailed results for the control variables are presented in table B2 in appendix B.

Table A1 .
Robustness tests results: replace the explained variable.

Table A2 .
Robustness tests results: replace the explanatory variable.
Panel A.

Table B2 .
(Continued.) Zhang W and Wang X 2023 Government audit, innovative activities, and green development Technol.Anal.Strateg.1-14 Zhang Y, Zhang Q, Hu H, Wang C and Guo X 2023a Accountability audit of natural resource, government environmental regulation and pollution abatement: an empirical study based on difference-in-differences model J. Clean.Prod.410 137205 Zhang Z, Dai X and Ding Y 2023b Government environmental governance and firms' green innovation: evidence from listed firms in heavy pollution industries of China Financ.Res.Lett.55 103848 Zhu L, Liu Y and Cai C 2023 Natural resources and assets accountability audit of local officials and government subsidies: evidence from China Appl.Econ.Lett.30 981-5 Notes: * p < 0.1, * * p < 0.05, * * * p < 0.01.