Relation between Auditor Quality and Corporate Tax Aggressiveness: Implications of Cross-Country Institutional Differences

59 Pages Posted: 15 Jan 2016 Last revised: 27 Feb 2017

See all articles by Kiridaran (Giri) Kanagaretnam

Kiridaran (Giri) Kanagaretnam

York University - Schulich School of Business

Jimmy Lee

Singapore Management University - School of Accountancy

Chee Yeow Lim

Singapore Management University - School of Accountancy

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business

Abstract

Using an international sample of firms from 31 countries, we study the relation between auditor quality and corporate tax aggressiveness. Using an indicator variable for tax aggressiveness when the firm’s corporate tax avoidance measure is within the top quintile of each country-industry combination, we find strong evidence that auditor quality is negatively associated with the likelihood of tax aggressiveness, even after controlling for other institutional determinants such as home-country tax system characteristics. We also find that the negative relation between auditor quality and the likelihood of tax aggressiveness is more pronounced in countries where investor protection is stronger, auditor litigation risk is higher, the audit environment is better, and capital market pressure is higher.

Keywords: Auditor Quality; Corporate Tax Aggressiveness; Investor Protection; Litigation Risk; Audit Environment; Capital Market Pressure

JEL Classification: M42, M48, H20, F30

Suggested Citation

Kanagaretnam, Kiridaran and Lee, Jimmy and Lim, Chee Yeow and Lobo, Gerald J., Relation between Auditor Quality and Corporate Tax Aggressiveness: Implications of Cross-Country Institutional Differences. Auditing: A Journal of Practice & Theory, Vol. 35, No. 4, 2016, Singapore Management University School of Accountancy Research Paper No. 2016-37, Available at SSRN: https://ssrn.com/abstract=2716071 or http://dx.doi.org/10.2139/ssrn.2716071

Kiridaran Kanagaretnam (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Jimmy Lee

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore, 178900
Singapore
(65) 6808 5234 (Phone)

Chee Yeow Lim

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States
713-743-4838 (Phone)
713-743-4828 (Fax)

HOME PAGE: http://www.bauer.uh.edu/acct/acctprofile.asp?search=Gerald%20Lobo

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