The Effect of Key Audit Matters Disclosure on Corporate Innovation
43 Pages Posted: 1 Nov 2023
Abstract
We examine whether, and how, audit regulatory changes affect corporate innovation. Using the key audit matters disclosure (KAM disclosure) as a quasi-natural experiment, we find that KAM disclosure has a causal effect on enhancing corporate innovation. We also identify two underlying mechanisms through which KAM disclosures spur corporate innovation by restraining managerial myopia and improving corporate risk taking. Cross-section analysis further shows that the effect of KAM disclosure is more significant in firms with high internal control quality and institutional shareholdings. Our study highlights how managers respond to audit regulatory change from the perspective of shaping corporate innovation decision making.
Keywords: key audit matters, corporate innovation, auditors' prudence, investor attention
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