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Audit fees and corporate innovation: Auditors' response to corporate innovation

Kim, Hyung-Tae and Lee, Seungwon and Park, Sung-Jin and Lee, Brandon (2019): Audit fees and corporate innovation: Auditors' response to corporate innovation.

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Abstract

We investigate the extent to which a client’s innovative effort affects the level of audit effort and whether the innovative-effort efficiency can attenuate the demand for greater audit effort associated with a client’s risky research-and-development (R&D) investments. We find that a client firm’s strategic emphasis on corporate innovations may require greater audit effort, but the efficiency of a firm’s innovative effort can attenuate the demand for heightened audit effort against risky, innovative efforts. Findings suggest that the external auditor does not always discourage corporate innovation as the efficiency of a firm’s innovation may lower the client business risk perceived by an auditor.

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