Paper Type
Complete
Abstract
How can partisan pressure impact firms and employees through regulators and auditors? I address this question using a stylized model of a regulator, two heterogeneous auditors, and a firm with workers who exert costly effort. Four core insights are presented. First, operational efficiency does not mechanically confer competitive advantage; cost savings may sustain higher assurance quality rather than lower prices. Second, firms can rationally select higher-priced auditors when superior regulatory alignment generates post-audit productivity gains that exceed engagement costs. Third, auditor alignment capacity, not quality or pricing alone, drives partisan regulatory knock-on effects on firms and workers. Fourth, marginal increases in partisan regulatory pressure generate strictly positive downstream effects on wages and firm payoffs, conditional on superior auditor alignment and sufficient ideological diversity. These findings establish political-economy forces as structural determinants of audit market competition and labor contracting, with direct implications for AI and algorithmic audit governance.
Paper Number
1378
Recommended Citation
Ray, Abhishek, "The Price of Compliance: Economic Implications of Partisan Bias in Audit Markets" (2026). AMCIS 2026 Proceedings. 2.
https://aisel.aisnet.org/amcis2026/sigasys/acctinfosys/2
The Price of Compliance: Economic Implications of Partisan Bias in Audit Markets
How can partisan pressure impact firms and employees through regulators and auditors? I address this question using a stylized model of a regulator, two heterogeneous auditors, and a firm with workers who exert costly effort. Four core insights are presented. First, operational efficiency does not mechanically confer competitive advantage; cost savings may sustain higher assurance quality rather than lower prices. Second, firms can rationally select higher-priced auditors when superior regulatory alignment generates post-audit productivity gains that exceed engagement costs. Third, auditor alignment capacity, not quality or pricing alone, drives partisan regulatory knock-on effects on firms and workers. Fourth, marginal increases in partisan regulatory pressure generate strictly positive downstream effects on wages and firm payoffs, conditional on superior auditor alignment and sufficient ideological diversity. These findings establish political-economy forces as structural determinants of audit market competition and labor contracting, with direct implications for AI and algorithmic audit governance.
Comments
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