IDEAS home Printed from https://ideas.repec.org/a/tei/journl/v15y2022i1p7-15.html
   My bibliography  Save this article

Audit Fees, Patent Litigation, and Long-Term Performance

Author

Listed:
  • Ya-Fang Wang

    (Providence University, 200, Sec. 7, Taiwan Boulevard, Shalu Dist., Taichung City 43301, Taiwan)

Abstract

Purpose:The business risk of patent litigation contributes to auditors’ professional skepticism and thereby results in different audit pricing decisions. Patent infringement is viewed as a specific news and thereby results in different economic consequences. This study examines the association among auditor reaction, patent litigation, and long-term economic consequences by exploring the different patent infringement cases. Design/methodology/approach:This study adopts a regression model to examine my research issues. Finding: The empirical results suggest that, (1) auditors consider patent settlement as a risk factor in the evaluation of business risks and lead to higher audit fees and lower business risk; (2) overseas patent litigation may affect auditors’ perceived risk of patent litigation and lead to higher audit fees and lower business risk; (3) relative to Plaintiff companies, auditors perceive Defendant companies have a higher business risk and lead to higher audit fees and lower business risk; (4) relative to companies without overseas litigation, auditors perceive companies with overseas litigation have a higher business risk and lead to higher audit fees and lower business risk; (5) Defendant companies have the advantage of long-term growth performance within 3 years after settlement negotiations of patent litigation; (6) settlement negotiations would be a significant moderator for overseas patent litigation, and companies are more likely to obtain a favorable long-term performance. Research limitations/implications: Research data is obtained from three different sources: First, the lawsuit information was hand-collected from the Market Observation Post System (MOPS). Second, the patent-related information was hand-collected from the Taiwan Patent Search System (TPSS). Third, audit fees and accounting data were obtained from the Taiwan Economic Journal (TEJ) database. Therefore, hand-collected data and lack of audit fees data restrict the research sample to a manageable size. The number of observations during the period 2010-2020, which totals 307 observations.

Suggested Citation

  • Ya-Fang Wang, 2022. "Audit Fees, Patent Litigation, and Long-Term Performance," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 15(1), pages 7-15, July.
    • Handle: RePEc:tei:journl:v:15:y:2022:i:1:p:7-15
    as

    Download full text from publisher

    File URL: https://ijbesar.ihu.gr/docs/volume15_issue1/15_01_01.pdf
    Download Restriction: no
    File URL: https://ijbesar.ihu.gr/volume15_issue1.php
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Timothy B. Bell & Wayne R. Landsman & Douglas A. Shackelford, 2001. "Auditors' Perceived Business Risk and Audit Fees: Analysis and Evidence," Journal of Accounting Research, Wiley Blackwell, vol. 39(1), pages 35-43, June.
    2. Harrison Hong & Terence Lim & Jeremy C. Stein, 2000. "Bad News Travels Slowly: Size, Analyst Coverage, and the Profitability of Momentum Strategies," Journal of Finance, American Finance Association, vol. 55(1), pages 265-295, February.
    3. Bryan, David B. & Mason, Terry W., 2016. "Extreme CEO pay cuts and audit fees," Advances in accounting, Elsevier, vol. 33(C), pages 1-10.
    4. Jay R. Ritter & Ivo Welch, 2002. "A Review of IPO Activity, Pricing, and Allocations," Journal of Finance, American Finance Association, vol. 57(4), pages 1795-1828, August.
    5. Bronwyn H. Hall & Adam Jaffe & Manuel Trajtenberg, 2005. "Market Value and Patent Citations," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 16-38, Spring.
    6. Zvi Griliches, 1984. "Market Value, R&D, and Patents," NBER Chapters, in: R&D, Patents, and Productivity, pages 249-252, National Bureau of Economic Research, Inc.
    7. Philip Brown & Gerry Gallery & Olivia Goei, 2006. "Does market misvaluation help explain share market long‐run underperformance following a seasoned equity issue?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 46(2), pages 191-219, June.
    8. Hirshleifer, David & Hsu, Po-Hsuan & Li, Dongmei, 2013. "Innovative efficiency and stock returns," Journal of Financial Economics, Elsevier, vol. 107(3), pages 632-654.
    9. Leonid Kogan & Dimitris Papanikolaou & Amit Seru & Noah Stoffman, 2017. "Technological Innovation, Resource Allocation, and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(2), pages 665-712.
    10. T. S. Raghu & Wonseok Woo & S. B. Mohan & H. Raghav Rao, 2008. "Market reaction to patent infringement litigations in the information technology industry," Information Systems Frontiers, Springer, vol. 10(1), pages 61-75, March.
    11. Carmelo Pierpaolo Parello & Luca Spinesi, 2005. "A Schumpeterian Model of Wage Inequality and Intellectual Property Rights Enforcement," Rivista di Politica Economica, SIPI Spa, vol. 95(5), pages 151-176, September.
    12. John D. Lyon & Michael W. Maher, 2005. "The Importance of Business Risk in Setting Audit Fees: Evidence from Cases of Client Misconduct," Journal of Accounting Research, Wiley Blackwell, vol. 43(1), pages 133-151, March.
    13. Basu, Sudipta, 1997. "The conservatism principle and the asymmetric timeliness of earnings," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 3-37, December.
    14. Ritter, Jay R, 1991. "The Long-run Performance of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(1), pages 3-27, March.
    15. S. P. Kothari & Susan Shu & Peter D. Wysocki, 2009. "Do Managers Withhold Bad News?," Journal of Accounting Research, Wiley Blackwell, vol. 47(1), pages 241-276, March.
    16. Lee, Jangwook, 2020. "Do Patents Lead to an Increase in Firm Value? Evidence from Korea," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 42(3), pages 33-52.
    17. Kiebzak, Stephen & Rafert, Greg & Tucker, Catherine E., 2016. "The effect of patent litigation and patent assertion entities on entrepreneurial activity," Research Policy, Elsevier, vol. 45(1), pages 218-231.
    18. Michael Peel & Roydon Roberts, 2003. "Audit fee determinants and auditor premiums: evidence from the micro-firm sub-market," Accounting and Business Research, Taylor & Francis Journals, vol. 33(3), pages 207-233.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lauren Cohen & Umit G. Gurun & Scott Duke Kominers, 2019. "Patent Trolls: Evidence from Targeted Firms," Management Science, INFORMS, vol. 65(12), pages 5461-5486, December.
    2. Serena Morricone & Raffaele Oriani, 2011. "Stock Market Valuation of Patent Portfolios," Chapters, in: Federico Munari & Raffaele Oriani (ed.), The Economic Valuation of Patents, chapter 13, Edward Elgar Publishing.
    3. M. D. Beneish & C. R. Harvey & A. Tseng & P. Vorst, 2022. "Unpatented innovation and merger synergies," Review of Accounting Studies, Springer, vol. 27(2), pages 706-744, June.
    4. Jeffrey L. Callen & Xiaohua Fang, 2020. "Local Gambling Norms and Audit Pricing," Journal of Business Ethics, Springer, vol. 164(1), pages 151-173, June.
    5. Li, Xiaogang, 2020. "Innovation, market valuations, policy uncertainty and trade: Theory and evidence," ISU General Staff Papers 202001010800009179, Iowa State University, Department of Economics.
    6. Federico Munari & Raffaele Oriani (ed.), 2011. "The Economic Valuation of Patents," Books, Edward Elgar Publishing, number 13561.
    7. Chang, Hsiu-yun & Liang, Woan-lih & Wang, Yanzhi, 2019. "Do institutional investors still encourage patent-based innovation after the tech bubble period?," Journal of Empirical Finance, Elsevier, vol. 51(C), pages 149-164.
    8. Bereskin, Fred & Hsu, Po-Hsuan & Latham, William & Wang, Huijun, 2023. "So Sue Me! The cross section of stock returns related to patent infringement allegations," Journal of Banking & Finance, Elsevier, vol. 148(C).
    9. Sheng-Syan Chen & Chia-Wei Huang & Chuan-Yang Hwang & Yanzhi Wang, 2022. "Voluntary disclosure and corporate innovation," Review of Quantitative Finance and Accounting, Springer, vol. 58(3), pages 1081-1115, April.
    10. Giau Bui, Dien & Chen, Yehning & Lin, Chih-Yung & Lin, Tse-Chun, 2021. "Risk-taking of bank CEOs and corporate innovation," Journal of International Money and Finance, Elsevier, vol. 115(C).
    11. David S. Abrams & Ufuk Akcigit & Jillian Grennan, 2013. "Patent Value and Citations: Creative Destruction or Strategic Disruption?," NBER Working Papers 19647, National Bureau of Economic Research, Inc.
    12. Byun, SeongK. & Fuller, Kathleen & Lin, Zhilu, 2021. "The costs and benefits associated with inventor CEOs," Journal of Corporate Finance, Elsevier, vol. 71(C).
    13. Filippo Mezzanotti, 2021. "Roadblock to Innovation: The Role of Patent Litigation in Corporate R&D," Management Science, INFORMS, vol. 67(12), pages 7362-7390, December.
    14. Kim, Hyung-Tae & Lee, Seungwon & Park, Sung-Jin & Lee, Brandon, 2019. "Audit fees and corporate innovation: Auditors' response to corporate innovation," MPRA Paper 101081, University Library of Munich, Germany.
    15. Tu Nguyen & Jing Zhao, 2021. "Industry tournament incentives and corporate innovation," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(9-10), pages 1797-1845, October.
    16. Shailu Singh, 2018. "Patenting Matters, Not Patents: Firm Market Value in Indian Manufacturing," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 12(1), pages 67-87, February.
    17. Gordon, Elizabeth A. & Hsu, Hsiao-Tang & Huang, Huichi, 2020. "Peer R&D disclosure and corporate innovation: Evidence from American depositary receipt firms," Advances in accounting, Elsevier, vol. 49(C).
    18. Obrimah, Oghenovo A., 2024. "Measuring Innovativeness: A ranking of the ordinal utility from consumption is more robust than either of ‘outcomes of commercialization’ or patent counts," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 603-616.
    19. Hongrui Feng & Yuecheng Jia, 2021. "Are CEOs incentivized to shelter good information?," The Financial Review, Eastern Finance Association, vol. 56(1), pages 109-132, February.
    20. James M. Plečnik & Leo L. Yang & Joseph H. Zhang, 2022. "Corporate innovation and future earnings: does early patent disclosure matter?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 2011-2056, April.

    More about this item

    Keywords

    Patent Litigation; Audit Fees; Long-Term Performance;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tei:journl:v:15:y:2022:i:1:p:7-15. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kostas Stergidis (email available below). General contact details of provider: https://edirc.repec.org/data/dbikagr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.