Tax Avoidance: Does Tax-Specific Industry Expertise Make a Difference?

Posted: 19 Aug 2011

See all articles by Sean T. McGuire

Sean T. McGuire

Texas A&M University - Department of Accounting

Thomas C. Omer

University of Nebraska at Lincoln - School of Accountancy

Dechun Wang

Texas A&M University

Date Written: August 18, 2011

Abstract

This study investigates whether the tax-specific industry expertise of the external audit firm influences its clients’ level of tax avoidance. Our results suggest that clients purchasing tax services from their external audit firm engage in greater tax avoidance when their external audit firm is a tax expert. Because the external audit firm potentially influences clients’ tax avoidance activities via the provision of tax consulting services and the financial statement audit, we also examine whether the overall expertise (i.e., the combined tax and audit expertise) of the external audit firm is associated with tax avoidance. We find that the external audit firm’s overall expertise is generally associated with greater tax avoidance, which suggests that overall experts are able to combine their audit and tax expertise to develop tax strategies that benefit clients from both a tax and financial statement perspective. In combination, our results suggest that the tax-specific industry expertise of the external audit firm plays a significant role in its clients’ tax avoidance.

Keywords: tax avoidance, auditor industry expertise, effective tax rate, cash effective tax rate

JEL Classification: M41, H25, H32, M21

Suggested Citation

McGuire, Sean T. and Omer, Thomas C. and Wang, Dechun, Tax Avoidance: Does Tax-Specific Industry Expertise Make a Difference? (August 18, 2011). Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1911972

Sean T. McGuire (Contact Author)

Texas A&M University - Department of Accounting ( email )

430 Wehner
College Station, TX 77843-4353
United States

Thomas C. Omer

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Dechun Wang

Texas A&M University ( email )

430 Wehner
College Station, TX 77843-4353
United States

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