Monitoring by Monitoring: Third‐Party Auditing and Monitoring Data Authenticity

ABSTRACT

The adoption of advanced technologies has transformed regulatory enforcement by enhancing data collection and accuracy across industries. However, these technological advancements have introduced new challenges in data reliability, as regulated firms possess superior technical control to generate favorable but inaccurate readings. This paper examines the effects of third‐party auditing in addressing these challenges by analyzing China's deployment of the data quality control system (DQCS) within the continuous emission monitoring system (CEMS). We find that the introduction of DQCS significantly restricts manipulations and improves data authenticity. Meanwhile, reported emission concentrations increase with data authenticity improvement, suggesting substantial prior underreporting. Furthermore, we observe a subsequent decline in pollutant concentrations, and this pollution reduction translates into measurable improvements in ambient air quality. Our study highlights the critical role of independent auditing in ensuring data integrity, especially in technology‐intensive regulatory settings. The Chinese government's efforts to institutionalize data verification within the CEMS framework provide valuable insight into strengthening the credibility of environmental data.