The bright side of imitative innovation: evidence from an analysis of audit pricing
Nutao Yu, Ruichen Miao, Hanwen Chen, Jiani WangPurpose
This paper explores the impact of imitative innovation, a strategic pathway for firms in emerging economies to achieve technological leadership, on audit pricing.
Design/methodology/approach
Based on a sample of Chinese listed firms from 2007 to 2022, this study employs the ordinary least squares (OLS) regression as a baseline methodology, supplemented by instrumental variable (IV) estimation, propensity score matching (PSM) and Heckman two-stage analysis to address potential endogeneity concerns.
Findings
The results demonstrate that audit fees are lower for firms imitating innovation practices of the auditor’s other clients. We further uncover a positive relationship between clients’ imitative innovation and both audit efficiency and audit quality. Cross-sectional analyses show that the negative relationship between imitative innovation within auditor portfolios and audit fees is more pronounced for non-state-owned firms and low-status firms. We also find that audit fee premiums charged by industry specialists and auditors with heavy workloads are reduced for firms engaged in such imitative innovation.
Practical implications
This study offers valuable insights for both firms and auditors. Firms engaged in imitative innovation may benefit from a more informed assessment of appropriate audit fees. Auditors, in turn, should leverage this knowledge spillover to enhance their expertise and consider clients’ innovation features when seeking to expand their client base.
Originality/value
This paper uncovers the bright side of imitative innovation and a new form of knowledge spillover from clients’ imitative innovation activities, which results in audits that are not only less expensive but also of higher quality.