دانلود رایگان مقاله انگلیسی قابلیت اثبات و تایید خارجی اطلاعات حسابداری و معاملات دارایی غیرمستقیم - SSRN 2018

Abstract:

Firms commonly use disaggregated accounting information to facilitate efficient contracting over intangible assets. However, reliance on accounting measures creates information asymmetries and thus a role for contract audits. Using a hand-collected sample of technology licensing agreements with royalties based on product-line revenues, I investigate how perceived weaknesses in the licensee’s accounting system and reporting flexibility affect the design of two key audit terms— (1) the scope of audit rights, and (2) penalties for adverse audit outcomes. I find that perceived weaknesses in the licensee’s reporting system lead to the granting of broader audit rights to the licensor, consistent with licensors demanding broader auditor rights when the licensee’s accounting system is believed to be less reliable. However, when the licensee has greater reporting flexibility, the contracting parties are more likely to include penalties in their agreements, consistent with the deterrence theory that penalties are a more cost-effective means to discourage intentional misreporting. Licenses covering more territory and having longer durations are associated with narrower audit scope terms, consistent with the self-enforcement theory that the greater the opportunity cost of early termination, the greater the licensee’s incentives to selfenforce. Overall, my results suggest that audit scope and penalties can improve contracting efficiency in two different ways.

7. Conclusions

This paper examines how perceived weaknesses in the licensee’s accounting system, reporting flexibility, and incentives to self-enforce influence the design of two key audit terms in technology licensing contracts—(1) scope of audit rights, and (2) penalties for negative audit results. This paper shows that perceived weaknesses in the licensee’s accounting system lead to broader audit rights and lower reliance on penalties. These findings are consistent with licensors demanding broader audit rights and relying less on penalty terms, when licensees’ accounting systems are perceived to be less reliable and produce more unintentional errors. When the licensee has high reporting flexibility due to the inclusion of more allowed deductibles, penalties are more likely to be used as a deterrent, while broader audit rights that increase the threat of more frequent, intrusive audits are less likely to be employed. These findings are consistent with penalties being more cost-effective deterrents to intentional misreporting. I also show that licenses covering more territory and having longer durations are associated with less stringent audit scope terms, consistent with the self-enforcement theory that the higher opportunity cost of early termination associated with greater expansion opportunities induces the licensee to self-enforce, thereby reducing the licensor’s need for audits. These results are not driven by the licensors priceprotecting themselves against the misreporting risk via higher royalty rates. Overall, my findings suggest that audit scope and penalties can improve contracting efficiency differentially, depending upon the contractual parties’ concerns regarding unintentional and intentional misreporting.