Audit Fees and Corporate Innovation

Posted: 7 Jul 2020

See all articles by Hyung Tae Kim

Hyung Tae Kim

California State University, Fresno

Seungwon Lee

Pennsylvania State University Harrisburg

Sung-Jin Park

Indiana University South Bend

Brandon Lee

Indiana University Northwest

Multiple version iconThere are 2 versions of this paper

Date Written: January 7, 2020

Abstract

We investigate the extent to which a client’s innovative effort affects the level of audit effort and whether the innovative-effort efficiency can attenuate the demand for greater audit effort associated with a client’s risky research-and-development (R&D) investments. We find that a client firm’s strategic emphasis on corporate innovations may require greater audit effort, but the efficiency of a firm’s innovative effort can attenuate the demand for heightened audit effort against risky, innovative efforts. Findings suggest that the external auditor does not always discourage corporate innovation as the efficiency of a firm’s innovation may lower the client business risk perceived by an auditor. Our contribution to a stream of literature is identifying facilitators and impediments to corporate innovation. Also, using the number of patents granted/cited as an output measure of a firm’s innovative effort, we extend understanding of the influence of a firm’s business strategies on the level of audit effort.

Keywords: Corporate innovation, Auditors, Research and development, Risk management

JEL Classification: M41, M42

Suggested Citation

Kim, Hyung Tae and Lee, Seungwon and Park, Sung-Jin and Lee, Brandon, Audit Fees and Corporate Innovation (January 7, 2020). Available at SSRN: https://ssrn.com/abstract=3625007

Hyung Tae Kim

California State University, Fresno ( email )

5241 North Maple Avenue
Fresno, CA 93740
United States

Seungwon Lee (Contact Author)

Pennsylvania State University Harrisburg ( email )

777 W. Harrisburg Pike
Middletown, PA 17057
United States

Sung-Jin Park

Indiana University South Bend ( email )

South Bend, IN 46634
United States

Brandon Lee

Indiana University Northwest ( email )

3400 Broadway
Gary, IN 46408
United States

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