Tax Knowledge Diffusion Through Individual Auditor Network Ties: Evidence from China

Lim, Chee Yeow; Shevlin, Terry; Wang, Kun; Xu, Yanping

doi:10.2139/ssrn.3229564

Cited by 10 publications

(11 citation statements)

References 49 publications

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“…Further, this study finds that auditor (AUD) is explaining PD positively (α = 0.0181 p < 0.01), implying that firms pursue permanent tax planning strategies when the auditors are from large audit firms. This could be due to the confidence instilled by the big-4 auditors, which then motivates the firms to conduct tax planning activities that can generate permanent nature of tax saving as auditors do provide advices on tax saving (Lim et al, 2018). Similarly, foreign sales (FS) is positively related to PD (α = 0.0003 p < 0.01) and STRD (α = 0.0001 p < 0.01) but in contrast, negatively related to TD (α = −0.0001 p < 0.05).…”

Section: Resultsmentioning

confidence: 99%

Effects of digital economy involvement on book-tax differences in Malaysia

Wahab

Ling

Pantamee

et al. 2021

Cogent Business & Management

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Malaysian government provides tax incentives to firms that involve in digital economy to increase digital economy activities in the country. This, however, can enlarge the country's tax gap. This study, therefore, attempts to investigate the effects of firms' digital economy involvement on book-tax differences (BTD), and its components, comprising permanent, temporary and statutory tax rates differences. A total of 846 firm-year data of Malaysian-listed firms from 2013 to 2018 were analysed. The relationships between digital economy involvement and temporary differences, and statutory tax rates differences were found positive and significant. This suggests that firms, through temporary differences, are leveraging on the usage of ICT to enjoy the incentives provided by the Government. The firms are also benefiting from cross-border businesses to secure tax benefits from differences of tax rules between jurisdictions. This study contributes to literature by providing further empirical evidence to support theory of tax incentives within the context of technology acceptance model. This study also contributes to the authority by providing insights on the extent the digital economy-related incentives can affect the country's tax gap. Firms can also be benefited from this study in their attempts to gauge the effects of digital economy activities on their tax position.

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Section: Resultsmentioning

confidence: 99%

Effects of digital economy involvement on book-tax differences in Malaysia

Wahab

Ling

Pantamee

et al. 2021

Cogent Business & Management

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“…Calibrating from the audit-firm level to the individual audit engagement partner, Frey (2018) suggests that the engagement of a German tax certified auditor, who signals high competency in taxes, is associated with higher effective tax rates at client firms. In contrast, Lim et al (2018), find that Chinese firms with stronger connections to low-tax firms through individual audit partners show lower effective tax rates. Further disentangling intermediaries as channels for tax knowledge diffusion, Barrios and Gallemore (2018) document that firms exhibit increasing tax planning when they hire tax staff from sophisticated tax planners.…”

Section: Channels For Tax Knowledge Diffusionmentioning

confidence: 89%

“…We are also interested in the characteristics of network participants, which could intensify or mitigate the identified learning effects. First, prior research provides mixed evidence regarding the role of auditors in tax knowledge diffusion (Klassen, Lisowsky, and Mescall, 2016;Lim et al, 2018;McGuire, Omer, and Wang, 2012). Furthermore, Brown (2011) and Brown and Drake (2014) hypothesized that geographical proximity and identical industry affiliation of the participants could enhance knowledge diffusion.…”

Section: Additional Analysesmentioning

confidence: 99%

“…Our inferences take their place alongside a range of mixed inferences concerning auditors' impact on tax knowledge diffusion. While Brown (2011) does not find significant tax shelter adoption via shared audit firms, and Klassen, Lisowsky, and Mescall (2016) show that less tax aggressiveness in the past is associated with the auditor preparing a firm's tax return, Lim et al (2018), and Cen et al (2018) suggest that common auditors facilitate tax planning diffusion.…”

Section: Additional Analysesmentioning

confidence: 99%

“…By examining a potential determinant of crosssectional variation in tax planning practices among firms, we follow the calls for contributions to the understanding of this matter (Cen et al, 2018;Dyreng and Maydew, 2017;Wilson, 2009). Recent research has turned to cross-firm connections, analyzing board ties (Brown, 2011;Brown and Drake, 2014), banks (Gallemore, Gipper, and Maydew, 2018), human capital turnover (Barrios and Gallemore, 2018), auditors (Frey, 2018;Lim et al, 2018) and the supply chain (Cen et al, 2017(Cen et al, , 2018. We extend this literature by analyzing the role of strategic alliances in tax knowledge diffusion.…”

Section: Introductionmentioning

confidence: 99%

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Tax Knowledge Diffusion via Strategic Alliances

Mueller

Weinrich

2020

SSRN Journal

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This study examines strategic alliances as channels for tax knowledge diffusion between firms. Despite solid insights on within-firm determinants of tax planning, little is known about tax knowledge diffusion via cross-firm connections. Since theory suggests that the role of strategic alliances in tax knowledge diffusion is ambiguous, we test our notion empirically. To tease out potential tax knowledge diffusion, we analyze changes in the tax planning behavior of high-tax firms in strategic alliances with low-tax firms in comparison to high-tax firms in strategic alliances with other high-tax firms. We apply a multivariate regression model, a difference-indifferences approach and use basic textual analysis to identify the main business purpose of a strategic alliance. We find a substantial increase in the tax planning behavior of high-tax firms in strategic alliances with low-tax firms relative to high-tax firms in high-tax strategic alliances. Additionally, our results suggests that high-tax firms are able to adjust their tax planning behavior within two years of network initiation when cooperating with low-tax firms. Because we are also able to provide a series of robustness checks, we interpret the identified responses to be consistent with existing tax knowledge diffusion via strategic alliances.

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Information sharing between mutual funds and auditors

Hope

Rao

et al. 2022

Business Fin & Account

Self Cite

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This paper examines whether there is information sharing between mutual funds and their auditors about the auditors’ other listed firm clients. Using data from the Chinese market, we find that mutual funds earn higher profits from trading in firms that share the same auditors. The effects are more pronounced when firms have a more opaque information environment and when the audit partners for the fund and the partners for the listed firm share school ties. The evidence is consistent with information flowing from auditors to mutual funds, providing mutual funds with an information advantage in firms that share the same auditors. Our findings are robust to the use of audit‐firm mergers and acquisitions (M&As) as exogenous shocks and several other robustness checks. We further find that auditors benefit by charging higher audit fees for mutual fund clients and by improving their audit quality for listed firm clients. Our study provides evidence of bi‐directional information sharing between two important market intermediaries.

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Tax Knowledge Diffusion Through Individual Auditor Network Ties: Evidence from China

Cited by 10 publications

References 49 publications

Effects of digital economy involvement on book-tax differences in Malaysia

Effects of digital economy involvement on book-tax differences in Malaysia

Tax Knowledge Diffusion via Strategic Alliances

Information sharing between mutual funds and auditors

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