Do Auditors Reduce Clients’ Costs of Processing Public Information? Evidence from Patent Citations

45 Pages Posted: 6 May 2022 Last revised: 23 May 2023

See all articles by Xuan Tian

Xuan Tian

Tsinghua University - PBC School of Finance

Jiawen Yan

Cornell University - Samuel Curtis Johnson Graduate School of Management

Luo Zuo

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: May 19, 2023

Abstract

We use patent citations to assess whether auditors reduce their clients’ costs of processing public information. We find that a company is more likely to cite another company’s patents when they are audited by the same audit firm. To mitigate the concern that this result is driven by commonality in the fundamentals of the two companies, we include a rich set of company-pair controls and conduct various tests that are specific to the information mechanism. We show that the effect of a shared auditor on cross-client patent citations is stronger when the two clients both exhibit intensive innovation activities, are industry peers, and share the same practice office of the audit firm. We also find evidence that shared auditors matter more for the citations of patents that are more recent and easier for outsiders to utilize. Overall, our findings suggest that auditors play an information intermediary role and help reduce their clients’ costs of processing public information.

Keywords: Shared Auditor, Information Processing Cost, Patent Citation, Innovation

JEL Classification: M42, O30

Suggested Citation

Tian, Xuan and Yan, Jiawen and Zuo, Luo, Do Auditors Reduce Clients’ Costs of Processing Public Information? Evidence from Patent Citations (May 19, 2023). PBCSF-NIFR Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=4099144 or http://dx.doi.org/10.2139/ssrn.4099144

Xuan Tian

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

Jiawen Yan

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Luo Zuo (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

349 Sage Hall
Ithaca, NY 14853
United States
607-255-4002 (Phone)

HOME PAGE: http://www.johnson.cornell.edu/faculty-research/faculty/lz352/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
378
Abstract Views
1,052
Rank
126,903
PlumX Metrics