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Auditor specialization in R&D and clients’ R&D investment-q sensitivity

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  • Lee, Eugenia Y.
  • Ha, Wonsuk
  • Park, Sunyoung

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.

Suggested Citation

  • Lee, Eugenia Y. & Ha, Wonsuk & Park, Sunyoung, 2023. "Auditor specialization in R&D and clients’ R&D investment-q sensitivity," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(2).
    • Handle: RePEc:eee:jocaae:v:19:y:2023:i:2:s1815566923000103
    DOI: 10.1016/j.jcae.2023.100360
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