Auditor Affiliated Tax Employees: Hiring Tax Professionals from the External Audit Firm

• In Event: Auditor Labor Markets I

Abstract

We investigate the determinants and consequences of public accounting tax employees moving into various positions at their audit firm’s largest public clients (i.e. auditor affiliated tax employees). We find that S&P500 firms with recent increases in effective tax rates (ETRs) are more likely to hire auditor affiliated tax partners and managers in a tax role. Firms are also more likely to hire an auditor affiliated tax employee if the audit firm was an industry specialist in the year in which the employee left the firm. After hiring auditor affiliated tax employees, we observe a reduction in ETRs, an increase in the firm’s procurement of tax planning non-audit services (NAS), and an increase in tax-related financial reporting quality. Our findings suggest that S&P500 firms hire senior-level auditor affiliated tax employees in order to work with their former colleagues on tax planning endeavors that lower ETRs but are not associated with increased financial reporting risks.

Authors

• John L. Campbell, University of Georgia

• Ronen Gal-Or, Bentley University

• Vic Naiker, University of Melbourne

• Iliyas Yusoff, Deakin University