Selection, Payment, and Information Assessment in Social Audits: A Behavioral Experiment

Problem definition: Companies often rely on third-party social audits to assess suppliers’ social responsibility (SR) practices. Empirical evidence suggests that these audits can often be too lenient and poor practices go unreported, particularly if the auditor feels beholden to the supplier. However, it is unclear how supplier involvement in selecting and paying auditors shapes these outcomes. Methodology/results: We design and conduct a novel incentivized experiment to study how a supplier choosing and/or paying the auditor affects audit reports. In addition, we explore whether and how these levers affect auditors’ assessment of noisy signals about the supplier’s practices and investigate the role of two behavioral phenomena: motivated reasoning and reciprocity. We find that auditors who are paid and chosen by the supplier are more lenient, and the effect is more pronounced when the information observed suggests poor SR practices. We do not find evidence of motivated reasoning, because auditors are not more likely to believe the supplier to have good practices when chosen by it. Instead, our results suggest that reciprocity toward the supplier plays a role. Finally, auditors who are merely paid by the supplier do not make more lenient decisions, which offers good news for practitioners. Managerial implications: Our results can help guide companies’ auditing and procurement policies. First, they show that removing a supplier’s ability to choose its own auditor is critical to increase the detection of poor SR practices, particularly when the risk of bad practices is high. Second, removing the suppliers’ ability to choose their auditor—while still paying for it—might be enough to reduce leniency risks. Finally, our findings shed light on some of the potential behavioral drivers behind auditors decisions, which can help design interventions to mitigate audit leniency.

History: This paper was selected as part of the 1RR initiative between the M&SOM Journal and the MSOM Society. This paper was part of the 2024 MSOM Sustainability Operations SIG Conference.

Funding: This research was supported by funding from the Dean’s Office and the Center for Sustainable Business at the University of Pittsburgh School of Business.

Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2025.0701.