Auditor specialization in R&D and clients’ R&D investment-q sensitivity |
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Institution: | 1. School of Business, Renmin University of China, Haidian District, Beijing 100872, China;2. Renmin University of China, Haidian District, Beijing 100872, China |
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Abstract: | While research and development (R&D) activities contribute to economic growth via technological innovations, they impose significant uncertainty and agency costs. In this study, we examine the governance role of R&D specialist auditors in affecting clients’ R&D investment decisions. Using a sample of U.S. firms during 2001–2016, we find that R&D specialist auditors’ clients make more efficient investments in the form of a higher R&D investment-q sensitivity. We also find that the reduction in discretionary adjustments of R&D expenses moderates the results. Further, when clients are audited by R&D specialists, their R&D investments are more closely linked to innovative output in subsequent years. Collectively, our results suggest that an auditor’s specialized knowledge induces clients to make better economic decisions. |
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Keywords: | Research and development R&D specialist auditors Investment Investment-q sensitivity Innovation |
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