Wen-Jye Hung, Pei-Gi Shu, Yi-Yin Ruan and Yamin Wang
This study aims to investigate the impact of auditor industry specialization (AIS) on clients’ tax planning at the audit firm level and individual auditor level, respectively.
Abstract
Purpose
This study aims to investigate the impact of auditor industry specialization (AIS) on clients’ tax planning at the audit firm level and individual auditor level, respectively.
Design/methodology/approach
The study’s sample consists of 44,637 firm-year observations of Chinese firms listed on the Shenzhen and Shanghai Stock Exchanges during the period from 2002–2020. The data are collected from the Taiwan Economic Journal. Panel regression is used to test hypotheses. Additionally, a two-stage least squares model is used to address concerns about possible endogeneity.
Findings
The relationship between tax planning and AIS is significantly positive at the audit firm level, while it is significantly negative at the individual auditor level.
Originality/value
The authors use manually collected data to investigate the distinct impacts of two AIS metrics on tax planning: the number of clients and the scale of clients.
Details
Keywords
Wen-Jye Hung, Pei-Gi Shu, Ya-Min Wang and Tsui-Lin Chiang
This study investigates the effect of auditing industry specialization (AIS) on the relative derivatives use for earnings management.
Abstract
Purpose
This study investigates the effect of auditing industry specialization (AIS) on the relative derivatives use for earnings management.
Design/methodology/approach
The sample chosen in this study comprises 30,599 firm-year observations of Chinese public companies from 2005 to 2018. The sample is divided into two time periods (2005–2013 and 2014–2018) according to the year when IFRS 9 was implemented (IFRS 9, first discussed by the International Accounting Standards Board in March 2008, is based on an expected credit loss model for determining new and existing expected credit losses on financial assets. The definition was completed in July 2014 and implemented in 2018). AIS was gauged with respect to audit firms and individual auditors, and measured by market share in number and scale of clients. Linear regression is adopted to test hypotheses. Moreover, two-stage least square model (2SLS) is used to eliminate the concern of possible endogeneity.
Findings
When gauged with respect to client scale, the scale-based AIS constrained the level of derivatives use for earnings management in the first period (2005–2013) while increased the level in the second period (2014–2018). The findings sustain for the analysis of audit firms and that of individual auditors, and for different definitions of AIS.
Research limitations/implications
The positive AIS-IN relation after the adoption of IFRS 9 implies the sacrifice audit independence. This could be indebted to the government policy that favors local audit firms to be comparable to international Big 4 audit firms, and therefore results in competition among local auditors/audit firms in securing number rather than quality of clients.
Originality/value
The data of AIS in China are collected using a Python web crawler.