Effects of auditor-provided tax services on book-tax differences and on investors' mispricing of book-tax differences |
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| Institution: | 1. Binghamton University – SUNY, USA;2. The Ohio State University, USA;1. University of Alabama at Birmingham, Collat School of Business, 307B Business and Engineering Complex, Birmingham, AL 35294, United States;2. University of Alabama at Birmingham, Collat School of Business, 3011A Business and Engineering Complex, Birmingham, AL 35294, United States;3. Department of Accounting & MIS, University of Delaware, 219 Purnell Hall, Newark, DE 19716, United States;1. Culverhouse School of Accountancy, University of Alabama, Tuscaloosa, AL 35487-0220, United States;2. Paul W. Parkison Department of Accounting, Ball State University, Muncie, IN 47304, United States;3. Coggin College of Business, University of North Florida, Jacksonville, FL 32224, United States;4. Knox School of Accountancy, Augusta University, Augusta, GA 30912, United States;1. Accounting Department, College of Business, Frostburg State University, 101 Braddock Rd, Frostburg, MD 21532, United States of America;2. Department of Accounting & Finance, School of Business & Management, Morgan State University, 1700 Cold Spring Lane, Baltimore, MD 21251, United States of America;1. Department of Accounting, College of Business Administration, University of Texas at San Antonio, San Antonio, TX 78249, United States;2. Gerald W. Schlief School of Accountancy, Stephen F. Austin State University, Nacogdoches, TX 75962, United States;1. Florida International University, United States of America;2. University at Albany – SUNY, United States of AmericaThis article was accepted by Roger Graham |
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| Abstract: | Over the last decade, the joint provision of audit and non-audit services has been criticized for compromising auditor independence and affecting audit quality. Since 2005, the SEC has enacted rules restricting the types of non-audit services audit firms can provide clients. While most non-audit services are prohibited, a range of tax services are still allowed. Therefore, if compromises can emerge from allowing non-audit services, permitting tax services could be problematic. This study investigates the effect of auditor-provided tax services (ATS) on firms' levels of book-tax differences and on investors' mispricing of book-tax differences. Using a propensity-score matched sample from 2000 to 2013, I find strong evidence that firms acquiring ATS exhibit a low level of temporary book-tax differences, which in turn mitigate investors' levels of firms' mispricing. These results do not support regulators' claim that the provision of ATS compromises auditor independence. Instead, it suggests that purchasing ATS can improve overall accounting quality through knowledge spillover and thus help investors better price the value of firms. |
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