Audit quality and tax aggressiveness: Evidence from a transition economy

Abstract

This study examines whether auditor quality affects firms’ tax reporting aggressiveness. Using China’s tax and audit environment as the research setting, our results provide empirical evidence that the use of high quality auditors can result in a higher level of tax compliance. We also find that the monitoring effect of high quality auditors on tax aggressiveness increases as book-tax conformity level decreases. The results contribute to the extant literature by providing evidence that we can rely on auditor quality as a signal and constraint for tax aggressiveness.