ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

The Effect of Accounting Firm Mergers on Corporate Tax Avoidance of Auditees

  • Bae, Seongho Kyungpook National University

Asian Tax Journal Vol. 21 No. 6 (2020), pp. 189-209

Abstract

The purpose of this study is to verify how the merger of accounting firms affects the tax avoidance of auditees. Due to the auditor registration system in effect in Korea from 2019, mergers between accounting firms occurred frequently in 2019. In this situation, it is meaningful to analyze the effects of the merger between accounting firms. In particular, there are not many cases of mergers between accounting firms in Korea, and there are very few previous studies that systematically analyzed them. This study conducted an empirical analysis on the recent merger between Anjin Accounting Firm and Hana Accounting Firm, and the merger between Hanyoung Accounting Firm and Younghwa Accounting Firm in 2005. Specifically, the three years before the merger and the three years after the merger are compared for tax avoidance of audited companies of Anjin, Hana, Hanyoung, and Younghwa accounting firm. Desai and Dharmapala’s (2006) measures of tax avoidance, effective corporate tax rate, and cash payment tax rate were used to measure tax avoidance. The results of the analysis are as follows. It was found that the tax avoidance of companies that received external audit from the merged accounting firm decreased. In other words, the larger the size of the accounting firm due to the merger, the more resources available for audit investment, and the greater the responsibility for compensation for damages, the less tax avoidance of the auditee, which causes information imbalance and agency problems. This study is meaningful in that it presents meaningful empirical results on how the merger of accounting firms affects tax avoidance in a situation where there are not many previous studies on the merger effect of accounting firms.

Keywords

  • Accounting firm mergers
  • corporate tax avoidance
  • auditor registration

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Asian Tax Journal

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