Corporate Innovation and Audit Fees

• In Event: Break with Research and Education Poster Forum

Abstract

Economic literature documents that the investment rate of intangibles has exceeded that of tangible assets in the U.S. private sector since the mid-1990s. However, whether or how the increasing intangibles created by innovative activities affect audit process and pricing have not been empirically examined yet. This study investigates whether the features of corporate innovation (e.g., complexity, efficiency, or obsolescence) are associated with audit fees. Using patent-based metrics to measure the features of innovation within firms, we find that the complexity of corporate innovation is positively associated with audit fees, while auditors do not charge higher fees for clients with greater research and development (R&D) intensity. Firms that can more efficiently convert R&D inputs into innovation outputs, which are measured by the number, citation frequency, and economic value of patents, are associated with lower audit fees. Furthermore, firms holding more aged patent portfolio are associated with higher audit fees.

Authors

• Daqun Zhang, Texas A&M University - Corpus Christi

• Donald R Deis, Texas A&M University - Corpus Christi

• Hsiao-Tang Hsu, Texas A&M University - Corpus Christi