A Study of the Effect of Auditing Committee on the Relationship between Investors’ Short-Sightedness and Research and Development Costs

Investors’ short-sightedness is a factor that makes them overestimate short-term and underestimate long-term interests. This behavior of investors motivates the directors to overestimate short-term performance of the company by decreasing its research and development costs. On the other hand, the auditing committee as a powerful mechanism of corporation authority makes a contribution to supervise responsibility of the board of directors through surveillance of the financial reporting process, autonomy of auditors, and effectiveness of internal controls. In this regard, the present research aims to review the effect of auditing committee on the relationship between investors’ short-sightedness and research and development costs in corporations accepted in Tehran Stock Exchange, The information of 150 companies were collected and analyzed by systematic deletion method during a 7-year-old period from 2007 to 2013. Hypotheses testing was conducted using multivariate regression and ordinary least square method with mixed data. Investors’ short-sightedness has a significantly negative impact on research and development costs. It means that as investors’ short-sightedness increases, research and development costs decline. The results also showed that the size of the corporation's auditing committee has a significantly decreasing impact on the negative relation between investors' short-sightedness and research and development costs and makes the correlation between those two variables positive. The autonomy of the corporation's auditing committee has a moderating effect on the negative correlation between investors' short-sightedness and research and development costs and decreases its intensity. It means that the decrease in the size and autonomy of the auditing committee decreases the negative relation between investors' short-sightedness and research and development costs. Considering the negative effect of investors' short-sightedness on research and development costs that encourages the directors to decrease long-term investment in future research and development, it is suggested to the managers to regard long-term consequences of decreasing investment in this field because they will decline the corporation's performance and competitive strength in long-term. Furthermore, it is recommended to short-sighted investors who have short-term perspective to pay more attention to the real and long-term performance of the company rather than its short-term interests because investors' short-sightedness causes that fundamental factor and long-term perspective in terms of investment in stock exchange be forgotten and replaced with obtaining just daily profit. Therefore, investors' short-sightedness has caused one of the greatest problems in the stock exchange and in the long term leads to its inefficiency.