Do ESG disclosures mediate the relationship between audit committee characteristics and audit quality? Evidence from the listed banks of Bangladesh

Abstract

In recent years, the sustainability and effectiveness of corporate governance mechanisms have revealed a growing trend toward measuring the overall firm's operational and managerial efficiency. The study aims to explore the influence of Audit Committee (AC) characteristics as measures of corporate governance and their effects on audit quality, as well as whether Environmental, Social, and Governance Disclosures (ESGD) have any relationship with audit quality in this regard. The study was conducted in the banking industry of Bangladesh based on an analysis of publicly available reports from 2019 to 2025. A quantitative research approach using the POLS method was employed, with audit quality proxied by Audit Fees (AF). The main factors associated with AC composition were included as independent variables. The bootstrap technique was adopted to analyze whether ESGD mediates the relationship. The findings of this study show a significantly positive relationship between AC size, independence, and ACGD and audit quality. The study contributes to the literature by identifying ESGD as a significant mediating mechanism between ACGD and audit quality, as ACGD is the only AC characteristic that improves audit quality through enhanced ESGD. Policymakers should prioritize inclusive and gender-diversified governance mechanisms. Focus should be given to ESG-based operations and standardized reporting tactics. A lack of diversification in industry and economic circumstances may limit the generalizability of the findings. Audit quality may also be influenced by factors other than audit fees.