The Innovation and Reporting Consequences of Financial Regulation for Young Life-Cycle Firms

• 成果类型: Article
• 署名作者: Allen, Abigail; Lewis-Western, Melissa F.; Valentine, Kristen
• 署名单位: Brigham Young University; University System of Georgia; University of Georgia
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/1475-679X.12398
• 发表日期: 2022
• 页码: 45-95
• 关键词: SARBANES-OXLEY-ACT; sox section 404; corporate governance; Audit committee; capital structure; INTERNAL CONTROL; earnings quality; AGENCY COSTS; cash flow; economic consequences

摘要

Firm life-cycle stage reflects a firm's current strategic direction toward exploration independent of age or size. We provide evidence that young life-cycle firms are particularly vulnerable to negative innovation consequences from financial regulation but do not appear to experience any compensating financial reporting quality (FRQ) benefits. Using a generalized difference-in-differences design around Sarbanes Oxley Act of 2002 (SOX), we document a significant reduction in both research and development (R&D) spending and innovation outputs for young life-cycle stage firms after regulation. Declines in innovation manifest both from the diversion of scarce resources and from the imposition of an organizational culture mismatched to the pursuit of explorative innovation, resulting in a less generalizable and less diversified patent portfolio. However, we find no evidence that improvements to FRQ materialize to offset these costs. Event study analyses suggest that this negative impact was expected by market participants, and postregulation returns confirm this expectation.