The impact of costly regulation on R&D investment levels and productivity

Anna M. Cianci, Amanda M. Convery, Mark E. Evans, Linda Hughen and Edward M. Werner

Advances in accounting, 2021, vol. 53, issue C

Abstract: Prior research finds that risk-taking has declined after the Sarbanes-Oxley Act of 2002, consistent with the notion that SOX's corporate governance and internal control mandates diverted resources away from corporate risk-taking. We introduce to the accounting literature a new measure of R&D productivity, Research Quotient, to examine whether SOX affects R&D risk-taking and R&D productivity differently and whether the quality of the firm's governance and internal controls, pre-SOX, moderate these relations. While we find the relation between SOX and R&D risk-taking is sensitive to research design choices, we find a consistent positive relation between SOX and Research Quotient. Our evidence indicates that while firms may allocate fewer resources to R&D post-SOX, they concurrently manage their R&D investments more productively. Further, our results are robust to a difference-in-difference design and are stronger for firms with weaker governance pre-SOX.

Keywords: Innovation; SOX; Productivity; Risk-taking; Corporate governance; Internal controls (search for similar items in EconPapers)
JEL-codes: D22 G38 M41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:advacc:v:53:y:2021:i:c:s0882611021000158

DOI: 10.1016/j.adiac.2021.100527

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