Shared Auditors And Contagion Effect Of Tax Aggressiveness

In recent years,the aggressive tax behavior of large multinational corporations has become more and more prominent.At the same time,the role of accountancy firms has come under increasing scrutiny.In 2013,the Public Accounting Committee of the House of Commons challenged the Big four accounting firms for using legal loopholes to help multinationals avoid paying taxes.According to British media investigation,many multinational companies use transfer pricing and other methods to avoid taxes with the help of accounting firms.Previous academic studies have discussed corporate tax avoidance methods,influencing factors and economic consequences,but little literature has focused on the role of auditors in corporate tax activism.Theoretically,auditors can influence enterprises' aggressive tax behaviors from three channels: one is to provide tax consulting services;the other is to restrain enterprises' aggressive tax behaviors through financial report audit;the third is to form a social network among enterprises to promote the transfer of tax avoidance experience among enterprise executives.As far as China is concerned,the auditor's tax service has not yet formed a scale,so the auditor's role in corporate tax activism is mainly reflected in the audit of financial statements.This paper focuses on the third channel through which auditors influence client tax activism,that is,whether shared auditors at the individual level leads to contagion effects of tax activism,and further considers the moderating effect of auditor individual industry expertise and client importance on contagion effects.In order to verify this problem,this paper first reviews relevant domestic and foreign literatures,and uses effective tax planning theory,social relation network theory,inter-organizational imitation theory and behavioral decision theory to analyze the contagion effect of shared auditor and aggressive tax behaviors.It is believed that shared auditors can lead to the contagion effect of aggressive tax behavior through two channels: one is to cause the contagion effect of aggressive tax behavior by reducing the uncertainty of the consequences of corporate tax avoidance decisions;the other is to cause the contagion effect by the inherent deviation of auditor behavior pattern and audit style.In this paper,enterprises with the effective tax rate of T-1 year at the lowest 20% per year in each industry are defined as the connected enterprises with aggressive tax behaviors,and the tax aggressiveness of the enterprises with the same auditor in charge of audit work in T year and the connected enterprises is investigated.The study finds that sharing auditors with companies with aggressive tax practices leads to higher tax aggressiveness of target companies,that is,shared auditors lead to the contagion effect of aggressive tax practices.Contagion effects are more pronounced when the auditor has individual industry expertise and client is more important.Further research has found that project auditors play a stronger role in contagion effects than partner reviewers.The time effect of contagion effect is not found in this study.This study may have the following contributions:(1)Provide new ideas for the study of the influencing factors of corporate tax activism.(2)Provide further evidence for the channels through which external audit influences the aggressive tax behaviors of enterprises.(3)Provide a new perspective for shared auditor research.