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Prior studies argue that an analyst is an important mediator between a firm and investors, and has a significant influence on the cost of equity. However, how analyst following influences the cost of equity has not been studied in depth. In the Chinese setting, where environmental information has attracted much attention, we explore the interaction among analyst following, environmental information disclosure, and cost of equity. With two linear regression methods of ordinary least squares (OLS) and two-Stage least squares (2SLS), we establish regressions to verify the relationships among them by using empirical data from 2004 to 2011 in China. The results show that analyst following can improve environmental information disclosure and lower the cost of equity. This interaction is more significant in the heavy-pollution industry and after new environmental policy is issued. We also find that environmental disclosure has a mediating effect, which determines how analyst following influences the cost of equity. The results expand the research on environmental information’s motivations and economic consequences.

Purpose The purpose of this paper is to investigate whether firms with high environmental disclosure have a low possibility of non-standard audit opinions and audit fees and whether this trend is more obvious after than prior to the Measures for the Disclosure of Environmental Information (Measure) implemented in 2008. Design/methodology/approach Based on the Measures implemented in 2008, the authors select data for the listed manufacturing firms from 2004 to 2006 (Pre-Measure) and from 2009 to 2011 (Post-Measure) as research samples to investigate the relationships between environmental disclosures, audit opinions and audit fees with difference in difference models. In addition, we also consider the influence of media attention, the polluting industry and internal control on the audit effect of environmental disclosure. Findings The results show that the level of environmental disclosure is significantly negatively correlated with the possibility of issuing non-standard audit opinions and audit fees after measure is implemented, especially hard environmental information. Further evidence indicates that the auditing effect of environmental disclosures is stronger on firms that receive less media attention, in firms with better internal controls, and in firms belonging to industries with heavy pollution. Originality/value In the Chinese setting, a high level of environmental information disclosures can effectively reduce the audit risk and lead to a high possibility of standard audit opinions and low audit fees. This effect is pronounced after issuing Measure. The conclusions suggest that measure and increasing environmental disclosure have an obvious positive audit effect and that firms should be forced or encouraged to disclose more environmental information from the perspective of auditors in China.

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