Do Auditor-Provided Tax Services Impair the Value Relevance of Earnings?
35 Pages Posted: 9 Feb 2012 Last revised: 13 Feb 2012
Date Written: February 1, 2012
Abstract
Lately, several firms have decoupled audit and tax service providers to shore up the credibility of their financial statements. However, a number of other firms rely on the incumbent auditor for tax services. Do investors assign a lower valuation to firms that continue to use the auditor for tax services? We contribute to the literature by examining whether auditor-provided tax services moderate investor perception of earnings. We find that the value-relevance of earnings is increasing in the ratio of tax fees over total fees paid to the auditor. Further, for a sample of firms that switched to other providers of tax services, we find that the value-relevance of earnings is lower in the year of the switch. These findings support the notion that on average, investors perceive the benefits of auditor-provided tax services, i.e., enhanced financial reporting quality due to knowledge spillover to be greater than the likely threat to auditor independence caused by auditor-provided tax services. Our findings have important implications for audit committee chairs, managers, and regulators.
Keywords: Market valuation, Tax fees, Ohlson model, Knowledge spillover
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
The Relation between Auditors' Fees for Non-Audit Services and Earnings Management
By Richard M. Frankel, Marilyn F. Johnson, ...
-
Do Non-Audit Service Fees Impair Auditor Independence? Evidence from Going-Concern Audit Opinions
By Mark L. Defond, Kannan Raghunandan, ...
-
By Rick Antle, Paul A. Griffin, ...
-
Evidence on the Joint Determination of Audit and Non-Audit Services
-
The Joint Determination of Audit Fees, Non-Audit Fees, And Abnormal Accruals
By Rick Antle, Elizabeth A. Gordon, ...
-
The Jointness of Audit Fees and Demand for MAS: A Self-Selection Analysis
-
Engagement Planning, Bid Pricing, and Client Response in the Market for Initial Attest Engagements
By Karla M. Zehms and Jean C. Bedard
-
Disclosure of Fees Paid to Auditors and the Market Valuation of Earnings Surprises
By Jere R. Francis and Bin Ke
-
Non-Audit Services and Earnings Conservatism: Is Auditor Independence Impaired?
By Caitlin M. S. Ruddock, Sarah J. Taylor, ...