Seminar (Dept. of Accounting)

Theme：Auditor Liability, Litigation Risk, and Corporate Tax Avoidance: Evidence from a Quasi-Experiment in the U.S.

Speaker：Yangyang Chen

Time：2021-10-27 10:00

Address：Tencent Meeting

Language：English

Venue： Tencent Meeting

https://meeting.tencent.com/dm/ZZv3EMgAOGQu

Meeting ID：743 965 983

Password：1027

ABSTRACT:

Exploiting the staggered changes in state-level auditor third-party liability in the U.S. as an exogenous shock, we examine the role that auditor litigation risk plays in shaping corporate tax avoidance. We find that firms significantly reduce their tax avoidance after an exogenous increase in their auditors’ litigation risk. The impact of increased auditor litigation risk on corporate tax avoidance is stronger for firms audited by Big 4 auditors, firms with higher ex ante litigation risk, and firms covered by more analysts. Additional evidence implies that the reduction in corporate tax avoidance after an increase in auditor litigation risk is associated with improvements to firms’ financial reporting transparency and information environment. We document a plausibly causal effect of auditor litigation risk on corporate tax policies.

SHORT BIOGRAPHY:

Yangyang Chen joined City University of Hong Kong in Oct 2019. He received his PhD from University of Melbourne and worked at Hong Kong Polytechnic University and Monash University before joining. His research interests are in corporate finance and financial accounting, including management compensation, corporate innovation, audit quality and pricing, earnings management, corporate disclosure, and so on. His works have been published or accepted in The Accounting Review, Journal of Accounting Research, Journal of Financial Economics, Journal of Financial and Quantitative Analysis, Contemporary Accounting Research, Review of Accounting Studies etc.