Auditor Networks and Tax Avoidance: Evidence from Private Firms

• In Event: Individual-Level Traits and Their Effects

Abstract

This study examines the relation between individual auditor expertise and tax avoidance among private firms. We employ unique data from Italian private firms where individual auditors are cross-appointed over multiple audit engagements. By interacting over multiple engagements, auditors form ties and integrate a professional network that can be a conduit of knowledge spillover and expertise. We use network measures of centrality aggregating multiple auditors’ ties and document that firms engaging better-connected auditors exhibit comparatively lower effective tax rates. We also examine two alternative determinants of tax avoidance proposed by prior studies, auditor industry specialization and contagion of tax strategies through ties to low-tax firms. The results indicate that in our setting auditor network centrality is important in determining clients’ levels of tax avoidance beyond auditor industry specialization or contagion of tax strategies. Overall, our findings suggest that individual auditors can effectively gather and spread information about tax savings strategies within their professional network.

Authors

• Pietro Andrea Bianchi, University of Miami

• Diana Falsetta, University of Miami

• Miguel A. Minutti-Meza, University of Miami

• Eric H. Weisbrod, University of Miami