Public Audit Oversight and Corporate Innovation: International Evidence

54 Pages Posted: 6 Dec 2021 Last revised: 28 May 2022

See all articles by Yuan Huang

Yuan Huang

Hong Kong Polytechnic University - School of Accounting and Finance

Zilong Song

School of Accounting,Nanjing University of Finance and Economics

K.C. John Wei

Hong Kong Polytechnic University

Kaitang Zhou

School of Economics and Management, Wuhan University

Date Written: April 5, 2022

Abstract

Exploiting the staggered establishment of public audit oversight boards (POBs) worldwide and employing a difference-in-differences methodology, we find that patents and patent citations increase significantly following the implementation of public audit oversight. This is especially so in client firms from countries where the national POBs publicly disclose inspection reports or whose auditors have greater industry expertise. Moreover, we find evidence consistent with the establishment of POBs promoting innovation activities by relaxing firms’ financial constraints, mitigating agency conflicts between managers and shareholders, and encouraging CEO risk-taking. Additional analyses show that after the establishment of national POBs, firms’ patents involve more new knowledge, are cited by a larger number of other firms, and have a more positive contribution to firm value. Overall, we document that the establishment of public audit oversight programs positively affects corporate innovation outcomes and explain the potential economic mechanisms in the international setting.

Keywords: Public audit oversight; Audit Quality; Financial Reporting; Innovation Output

JEL Classification: M42; M48

Suggested Citation

Huang, Yuan and Song, Zilong and Wei, Kuo-Chiang (John) and Zhou, Kaitang, Public Audit Oversight and Corporate Innovation: International Evidence (April 5, 2022). Available at SSRN: https://ssrn.com/abstract=3956884 or http://dx.doi.org/10.2139/ssrn.3956884

Yuan Huang (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

Zilong Song

School of Accounting,Nanjing University of Finance and Economics ( email )

Nanjing
China
13098807564 (Phone)

Kuo-Chiang (John) Wei

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Kaitang Zhou

School of Economics and Management, Wuhan University ( email )

Wuhan, 430072
China

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