Joint Audit Engagements and Client Tax Avoidance: Evidence from the Italian Statutory Audit Regime

2018 ◽  
Vol 41 (1) ◽  
pp. 31-58 ◽  
Author(s):  
Pietro A. Bianchi ◽  
Diana Falsetta ◽  
Miguel Minutti-Meza ◽  
Eric Weisbrod
Keyword(s):  
Fixed Effects ◽  
Tax Avoidance ◽  
Data Availability ◽  
Tax Rates ◽  
Firm Characteristics ◽  
Professional Networks ◽  
Effective Tax Rates ◽  
Accounting Firms ◽  
The Public ◽  
Professional Network

ABSTRACT Under the Italian statutory audit regime, three individual accountants are jointly appointed to audit each client's annual financial statements and sign off on the tax return. These individuals can belong to the same or different accounting firms and through multiple and repeated collaborations they form a professional network. We use network measures of centrality to capture individuals' ability to acquire and apply tax expertise across clients. We demonstrate that clients engaging better-connected individual auditors have comparatively lower effective tax rates. Our results are robust to controlling for a number of client, individual, and accounting firm characteristics, as well as for alternative network connections between clients. We also use instrumental variables, individual fixed effects, and matching to mitigate the effect of endogenous pairing of clients and auditors. Our findings demonstrate that in a joint audit environment, individual auditor professional networks have consequences for tax outcomes. Data Availability: Data are obtainable from the public sources cited in the text and are available upon request.

scholarly journals Will Problems Arise When Banks are Exempted from Thin Capitalization Regulation?

2018 ◽  
Vol 14 (3) ◽  
pp. 157-167
Author(s):  
Arfah Habib Saragih
Keyword(s):  
Fixed Effects ◽  
Quantitative Method ◽  
Tax Avoidance ◽  
Tax Rates ◽  
Effective Tax Rate ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Negative Effect ◽  
Thin Capitalization ◽  
Unbalanced Panel Data

This research was intended to provide empirical evidences that the exemption of banks from Minister of Finance Decree Number 169/PMK.010/2015 did not raise any significant problem on banks tax avoidance which was measured by effective tax rates. Quantitative method was used in this study by conducting regression-fixed effects method on unbalanced panel data. This study found that thin capitalization in banks did not impact effective tax rates significantly. Present research also found that the banks size and profitability were other determinants of the level of tax avoidance in the banks sample. Bank size and profitability had a significant and negative effect on effective tax rate.

Tax Avoidance and Tunneling: Empirical Analysis from an Agency Perspective

2015 ◽  
Vol 15 (3) ◽  
pp. 49-66 ◽  
Author(s):  
K. Hung Chan ◽  
Phyllis Lai Lan Mo ◽  
Tanya Tang
Keyword(s):  
Corporate Governance ◽  
Transition Economy ◽  
Tax Avoidance ◽  
Economic Consequences ◽  
Tax Rates ◽  
Agency Conflicts ◽  
Firm Characteristics ◽  
Minority Shareholders ◽  
Effective Tax Rates ◽  
Highly Correlated

ABSTRACT Taking advantage of the agency conflicts between controlling shareholders and minority shareholders and the weak corporate governance in a transition economy, we investigate the relationship between tax avoidance (proxied by effective tax rates) and tunneling (proxied by related-party lending) from a principal-principal agency perspective. We find that corporate tax avoidance is positively associated with tunneling after controlling for firm characteristics, corporate governance, and institutional factors that affect tunneling. This relationship is more pronounced for firms with cash shortages and in periods with relatively weak investor protection. In addition, the value-enhancing implications of tax avoidance are reduced for firms in which tax avoidance is highly correlated with tunneling. By demonstrating the existence of tunneling-related tax avoidance and its economic consequences, this study sheds light on the emerging agency perspective on tax avoidance. JEL Classifications: G18; H20; M41.

Examining Tax Strategy Choice

2021 ◽  
Author(s):  
Stevanie S. Neuman
Keyword(s):  
Tax Avoidance ◽  
Theoretical Work ◽  
Tax Planning ◽  
Tax Rates ◽  
Firm Characteristics ◽  
Effective Tax Rates ◽  
Tax Research ◽  
Reputational Costs ◽  
Distinct Approach ◽  
Strategy I

Most recent tax research examines the level of firms' effective tax rates (ETRs), focusing on tax avoidance. However, theoretical work and research on book-tax tradeoffs and reputational costs indicate some firms have other tax planning goals. Moreover, anecdotal evidence suggests consistent tax outcomes are important; therefore, the volatility of ETRs may be an alternative aspect of firms' tax planning. In this study, I find some firms utilize a second, distinct approach to tax strategy - maintaining low ETR volatility - by documenting systematic differences in firm characteristics associated with each tax strategy approach and a predictable shift in characteristics when firms change tax strategies. In combination, these results identify at least two distinct approaches to tax strategy. I also find firms exhibiting low ETR volatility earn significantly higher median buy-and-hold returns than firms exhibiting low ETR levels, consistent with benefits to alternative tax strategies.

Media Coverage of Corporate Taxes

2018 ◽  
Vol 94 (5) ◽  
pp. 83-116 ◽  
Author(s):  
Shannon Chen ◽  
Kathleen Schuchard ◽  
Bridget Stomberg
Keyword(s):  
Media Coverage ◽  
Tax Avoidance ◽  
Data Availability ◽  
Corporate Taxes ◽  
Tax Rates ◽  
Effective Tax Rates ◽  
Economic Recessions ◽  
External Stakeholders ◽  
The Media ◽  
Negative Tone

ABSTRACT Managers express growing concern over media coverage of corporate taxes, yet no large-sample empirical study examines this phenomenon. As a first step to fill this void, we identify factors associated with the likelihood and negative tone of media tax coverage and examine firms' tax avoidance behavior following media tax coverage. We find the likelihood of media tax coverage is greater for firms with GAAP effective tax rates below the top U.S. statutory rate of 35 percent and for firms with greater visibility. The degree of negative tone is increasing in cash tax avoidance and firm size. We also find evidence of more frequent and more negative tax coverage during economic recessions. We find no evidence that firms reduce their tax avoidance following media coverage. Although our analyses are subject to limitations, our results suggest the media may not have the same influence over corporate tax policy as other external stakeholders. JEL Classifications: H25; H26; H20; M41; G39. Data Availability: Data are available from public sources identified in the paper.

A Study of Perceived Ethicality of Low Corporate Effective Tax Rates

2017 ◽  
Vol 32 (1) ◽  
pp. 87-104 ◽  
Author(s):  
F. Todd DeZoort ◽  
Troy J. Pollard ◽  
Edward J. Schnee
Keyword(s):  
Mediation Analysis ◽  
General Public ◽  
Tax Avoidance ◽  
Tax Rates ◽  
Perceived Fairness ◽  
Effective Tax Rate ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Policy Practice ◽  
Participant Group

SYNOPSIS U.S. corporations have the ability to avoid paying domestic taxes to achieve an effective tax rate that is much lower than the statutory federal tax rate. This study evaluates the extent that individuals differ in their attitudes about the ethicality of corporations avoiding domestic taxes to achieve low effective tax rates. We also examine the extent to which the specific tax avoidance method used by corporations to access a low effective tax rate affects perceived ethicality. Eighty-two members of the general public and 112 accountants participated in an experiment with two participant groups and three tax avoidance methods manipulated randomly between subjects. The results indicate a significant interaction between participant group and tax avoidance method, with the general public considering shifting profits out of the country to achieve a low effective tax rate to be highly unethical, while the accountants find tax avoidance from carrying forward prior operating losses to be highly ethical. Further, mediation analysis indicates that perceived fairness and legality mediate the effects of participant type on perceived ethicality. Mediation analysis also reveals that sense of fairness and legality mediate the link between tax avoidance method and perceived ethicality. We conclude by considering the study's policy, practice, and research implications.

An Examination of Reputational Costs and Tax Avoidance: Evidence from Firms with Valuable Consumer Brands

2017 ◽  
Vol 39 (1) ◽  
pp. 67-93 ◽  
Author(s):  
Chelsea Rae Austin ◽  
Ryan J. Wilson
Keyword(s):  
Tax Avoidance ◽  
Tax Rates ◽  
Effective Tax Rates ◽  
Reputational Costs

ABSTRACT We expect firms with the greatest exposure to reputational damage among consumers will engage in lower levels of tax avoidance to minimize unwanted scrutiny that could impair the firms' reputation. We identify a set of firms with valuable consumer reputation using Harris Interactive's EquiTrend survey, which surveys consumers about their perceptions of valuable and prominent brands. We find evidence in support of our hypothesis that firms with valuable brands will engage in less tax avoidance. Specifically, we find a positive and significant association between our measure of reputation and both the GAAP and cash effective tax rates (measured over one and three years). We find mixed evidence on whether there is a negative and significant association between reputation and the probability the firm is engaging in tax sheltering.

The Incidence, Valuation and Management of Tax-related Reputational Costs: Evidence from a Period of Protest

2021 ◽  
Author(s):  
Dan S. Dhaliwal ◽  
Theodore H Goodman ◽  
P.J. Hoffman ◽  
Casey M Schwab
Keyword(s):  
Media Coverage ◽  
Abnormal Returns ◽  
Tax Avoidance ◽  
Social Protest ◽  
Tax Rates ◽  
Firm Characteristics ◽  
Political Costs ◽  
Time Invariant ◽  
Media Sentiment ◽  
Reputational Costs

We examine the incidence, valuation and management of tax-related reputational costs during 2011, a year of extensive social protest that temporarily increased scrutiny of corporate tax avoidance. We report three main results. First, tax avoidance is positively associated with negative media sentiment during the protest period (i.e., 2011). Second, a hedge portfolio long (short) in low (high) tax avoidance firms generates positive abnormal returns during the protest period. Third, firms experiencing the largest reputational costs during the protest period report higher tax rates in subsequent years. Supplemental analyses indicate tax-related media coverage increased during the protest period, and that the results are unlikely driven by political costs or other time-invariant firm characteristics. Our findings suggest that tax-related reputational costs are not pervasive. Instead, these costs only occur during periods of unusually high scrutiny, which helps explain prior studies' difficulties in providing large-sample evidence of tax-related reputational costs.

Top Management Team Intrapersonal Functional Diversity and Tax Avoidance

2020 ◽  
Author(s):  
James M. Plecnik ◽  
Shan Wang
Keyword(s):  
High Risk ◽  
Functional Diversity ◽  
Work Experience ◽  
Top Management Team ◽  
Tax Avoidance ◽  
Management Team ◽  
Top Management ◽  
Tax Rates ◽  
Effective Tax Rates ◽  
Prior Literature

Top management team (TMT) members have been shown to influence tax avoidance; however, prior literature has not identified whether the intrapersonal diversity of TMT functional backgrounds leads to higher levels of tax avoidance. To study this relationship, we utilize TMT intrapersonal functional diversity, which captures the average heterogeneity of the TMT members' work experience. The skills associated with intrapersonal functional diversity may allow managers to better understand and communicate with various parties related to firm tax policies, thereby facilitating tax avoidance. Overall, we find that TMTs with higher levels of intrapersonal functional diversity achieve lower cash effective tax rates and that these TMTs do not rely on tax strategies that pose high risk.

How Internal Control Protects Shareholders' Welfare: Evidence from Tax Avoidance in China

2020 ◽  
Vol 19 (2) ◽  
pp. 19-39
Author(s):  
Hsihui Chang ◽  
Xin Dai ◽  
Yurun He ◽  
Maolin Wang
Keyword(s):  
Control Systems ◽  
Internal Control ◽  
Agency Costs ◽  
Tax Avoidance ◽  
Positive Association ◽  
Data Availability ◽  
Corporate Tax ◽  
Controlling Shareholders ◽  
The Public ◽  
Prior Literature

ABSTRACT This paper investigates how effective internal control protects shareholders' welfare in the context of corporate tax avoidance. Prior literature documents a positive association between internal control weakness and low tax avoidance. In this paper, we re-examine this association and complement prior research by finding that the direction of the association between internal control and tax avoidance depends on the level of tax avoidance. Specifically, for firms with low (high) levels of tax avoidance, internal control quality is positively (negatively) associated with tax avoidance. In additional analyses, we further explore how internal control mitigates agency costs for state-owned enterprises and tunneling activities. We show that for state-owned enterprises, which have lower incentives to avoid tax, effective internal control prevents managers from paying more taxes to cater to the controlling shareholders' interests. We also find that the association between tax avoidance and tunneling is reduced by effective internal control systems. Data Availability: Data are available from the public sources cited in the text.

Visualization of tax avoidance and tax rate convergence

2019 ◽  
Vol 27 (5) ◽  
pp. 695-724 ◽  
Author(s):  
Chika Saka ◽  
Tomoki Oshika ◽  
Masayuki Jimichi
Keyword(s):  
Tax Avoidance ◽  
Tax Rates ◽  
Cross Sectional ◽  
Effective Tax Rates ◽  
Accounting Data ◽  
Content Type ◽  
Tax Rate ◽  
Objective Evidence ◽  
New Perspective ◽  
Convergence Trend

Purpose This study aims to explore the evidence of the probability of firms’ tax avoidance and the downward convergence trend of national statutory tax rates and firms’ effective tax rates. Design/methodology/approach This research employs exploratory data analysis using interactive data manipulation and visualization tools, namely, R with SparkR, dplyr, ggplot2 and googleVis (GeoChart and Motion Chart) packages. This analysis is based on the world-scale accounting data of all listed firms from 148 countries spanning 30 years. Findings The results reveal the following: three types of evidences on probability of firms’ tax avoidance, showing a non-random distribution of firms’ effective tax rates and return on assets, cross-sectional variation of firms’ effective tax rates in each country, and the trend of difference between effective tax rates and statutory tax rates, and the downward convergence trend of statutory tax rates and firms’ effective tax rates. Practical implications The results highlight the prominent issues of world-scale tax avoidance and tax rate competition and facilitate a collaborative discussion between laymen and professionals using objective evidence. Originality/value A novel methodology is adopted through the visualization of world-scale accounting data, which can facilitate a new perspective, revealing unexpected patterns and trends in otherwise hidden information. This study also highlights the importance of global consideration of firms’ tax avoidance and tax rate competition, using objective evidence.

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