Using multiple indicators of audit quality, the study examines the impact of audit partner rotation on audit quality in India based on 1,694 firm years for the period of 2011-2017 when the institutional set up for audit partner rotation was voluntary. The empirical results indicate that the audit partner rotation had no significant impact on audit quality as measured by discretionary accruals and going concern audit opinion. The study finds that other factors like loss year, size of the firm, value, leverage have a statistically significant impact on audit quality. The empirical results also indicate an inverse relationship between audit fees and audit partner rotation implying, price-cutting of the audit. The findings are important to regulators regarding the significance of audit partner rotation in enhancing audit quality.

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This study uses a difference‐in‐differences estimation method to address potential endogeneity between corporate social responsibility (CSR) and firm performance using a natural experiment of COVID‐19, with a cross‐country sample of 80,454 firm‐quarter observations across 51 countries. We find that high‐CSR firms show better performance, raise more debt, and invest more during COVID‐19. The positive effect of CSR on firm performance is more pronounced in countries with better governance and among non‐ International Financial Reporting Standards adopters. Our findings suggest that when trust in firms and markets falls during an economic crisis, the trust established between a firm and its stakeholders via socially responsible behavior pays off.

PurposeThis study examines the association between geopolitical risk (GPR) and corporate tax, which is a major source of revenue for the government and a significant explicit cost for firms. The authors use a comprehensive measure of GPR to study its effects on corporate taxes by using an international sample.Design/methodology/approachThe authors adopt the geopolitical measure constructed by Caldara and Iacoviello (2022) as a proxy for GPR and cash-effective tax rate benchmarked with statutory tax rate to measure corporate tax avoidance. The authors employ panel regression with fixed effects (FEs) to investigate the impact of GPR on corporate tax avoidance. The authors also conduct a battery of robustness tests to ensure the strength of the study’s results.FindingsThis study’s empirical results indicate that sample firms increase their tax avoidance amid increasing GPR. Further analyses show that financial constraints incentivize firms to avoid taxes during rising geopolitical tensions. The authors also provide evidence on the role of firm-level and country-level governance in weakening the association between GPR and tax avoidance.Practical implicationsPolicymakers and governments may strengthen the enforcement rule to limit aggressive tax practices of corporates during GPR to balance fiscal deficit. In addition, this study sheds light on the debate among administrators and politicians over the efficacy of current tax laws and governance structures in the presence of heightened GPR.Originality/valueThe authors extend the literature on GPR by analyzing its effect on corporate tax avoidance. Unlike existing single-country studies, the authors use a cross-country setup to investigate the impact of GPR on tax avoidance, making this study’s results more generalizable as the authors control for a host of country, industry, and time factors. Apart from political uncertainty, terrorism, and climatic issues, the authors document GPR as a strong macroeconomic driver of corporate tax avoidance. The authors make a new contribution to the literature on the moderating role of governance and institutional factors on the association between tax avoidance and GPR in an international context. The authors also contribute to the literature on macroeconomic determinants of tax avoidance.