EURO 2024 Copenhagen
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2198. Does audit backfire on corporate social responsibility? An experimental study on supplier's behaviours and motivations

Invited abstract in session WC-7: Behavior in supply chain collaboration, stream Behavioural OR.

Wednesday, 12:30-14:00
Room: 1019 (building: 202)

Authors (first author is the speaker)

1. LUYAO LI
Industrial Engineering, Tsinghua University
2. Xiaobo Zhao
Industrial Engineering, Tsinghua University

Abstract

We consider a setting of corporate social responsibility (CSR) that suppliers choose responsibility effort and hiding effort, given buyers’ audit levels. Theoretical research indicates a potential "backfiring condition" where increased audits drive suppliers to prioritize hiding evidence of CSR violations over investing in social responsibility. To validate this prediction, we conduct a behavioural experiment with two treatments to examine suppliers’ decisions in responsibility and hiding efforts under low and high audit levels. Different from the standard model's prediction of significantly higher responsibility efforts in the low-audit treatment compared to the high-audit treatment, experimental results show no significant difference. Additionally, actual hiding efforts by suppliers significantly exceed (fall below) the theoretical value in the low-audit (high-audit) treatment. We build a behavioural model consisting of probability weighting, mental accounting, and bounded rationality. Structural estimation of behavioural parameters shows that probability weighting leads suppliers to increase hiding efforts and reduce responsibility efforts. Conversely, mental accounting causes suppliers to overvalue the additional loss from CSR violations exposure, prompting higher responsibility efforts and lower hiding efforts. These findings highlight the necessity of comprehensively considering the decision biases in supply chain social responsibility management.

Keywords

Status: accepted

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