Statutory Auditors and Tax Compliance: Evidence from a Quasi-Natural Experiment

Posted: 14 Apr 2020

See all articles by Charoula Daskalaki

Charoula Daskalaki

University of Crete, Department of Economics

Nikolaos I. Karampinis

Athens University of Economics and Business - Department of Accounting and Finance

Date Written: February 23, 2020

Abstract

Using a unique, quasi-natural experiment, we evaluate the recruitment of statutory external auditors for tax inspection purposes. In 2011, statutory external auditors were assigned to certify the tax compliance of firms subject to a regulatory change enacted by a state directive in Greece. Under this new directive, besides the audit report for financial statements, auditors were responsible to prepare the “Tax Compliance Report” (TCR) to assure that the audited firm complies with official tax rules. We investigate whether this proactive measure had any effect on firms’ tax avoidance behavior. Using a difference-in-differences research design, our empirical results suggest that non-conforming tax avoidance for treated firms (i.e. firms subject to tax audits) significantly decreased in the post-TCR period compared to that of the control sample (i.e. firms not subject to tax audits). Conversely, conforming tax avoidance increased. This evidence suggests that treated firms switched from non-conforming to conforming tax avoidance activities.

Keywords: Tax avoidance; Statutory auditors; Tax enforcement

JEL Classification: G3; H25; H26; K34; M41

Suggested Citation

Daskalaki, Charoula and Karampinis, Nikolaos I., Statutory Auditors and Tax Compliance: Evidence from a Quasi-Natural Experiment (February 23, 2020). Available at SSRN: https://ssrn.com/abstract=3543151

Charoula Daskalaki

University of Crete, Department of Economics ( email )

Rethymno, Crete GR-74100
Greece

Nikolaos I. Karampinis (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

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