University of California, Hastings College of the Law
Firms seeking to avoid reputational spillovers that can arise from dangerous, illegal, and unethical behavior at supply chain factories are increasingly relying on private social auditors to provide strategic information about suppliers’ conduct. But little is known about what influences auditors’ ability to identify and report problems. Our analysis of nearly 17,000 supplier audits reveals that auditors report fewer violations when individual auditors have audited the factory before, when audit teams are less experienced or less trained, when audit teams are all-male, and when audits are paid for by the audited supplier. This first comprehensive and systematic analysis of supply chain monitoring identifies previously overlooked transaction costs and suggests strategies to develop governance structures to mitigate reputational risks by reducing information asymmetries in supply chains.