Regulatory Pressure and Audit Resource Reallocation: Evidence From Mandatory Audit Committee Report Disclosure

ABSTRACT This study examines how regulatory pressure affects audit firms' internal resource allocation. Leveraging the mandate requiring Shanghai‐listed firms to disclose standalone audit committee reports, we employ a difference‐in‐differences design to identify causal effects. Audit report lags (ARLs) increase for treated firms, suggesting heightened audit scrutiny, whereas untreated firms—especially non‐key clients—experience a temporary reduction in ARLs, consistent with resource diversion under capacity constraints. At the audit firm level, the policy widens ARL gaps between treated and control clients, providing evidence of cross‐client resource reallocation. These findings show that disclosure‐based governance regulation can enhance audit effort for targeted firms but also create negative spillovers for lower‐priority clients.