Tax knowledge diffusion through individual auditor network ties: Evidence from China

• Main Authors: LIM, Chee Yeow, SHEVLIN, Terry, WANG, Kun, XU, Yanping
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2018
• Subjects: Network ties; audit partner; tax avoidance; school ties separated; Accounting; Asian Studies
• Online Access: https://ink.library.smu.edu.sg/soa_research/1858; https://ink.library.smu.edu.sg/context/soa_research/article/2885/viewcontent/SSRN_id3229564.pdf
• Institution: Singapore Management University

This study investigates whether network ties via sharing the same individual auditor influences the diffusion of tax avoidance knowledge. We find that firms with greater connection to low-tax firms through audit partners have lower effective tax rates (ETRs), consistent with tax avoidance knowledge being shared among firms through individual auditor network. The influence of audit network ties on tax avoidance at focal firms is stronger when partners’ tenure in low-tax firms is longer, and when partners have social connection with the top executives of focal firms. In addition, audit fees of focal firms with auditor network ties to low-tax firms are significantly higher if their executives are not socially connected to partners, suggesting that audit partners benefit from sharing the tax avoidance knowledge with clients without social ties.