Firm Executives’ Connections to Individual Auditors and Tax Avoidance

Abstract

This study examines the effect of social ties between senior executives and auditors on tax avoidance. The findings show that firms with senior executive–auditor social ties exhibit higher levels of tax avoidance. We also find that client importance has a positive moderating effect on this association. Furthermore, firms with executive–auditor social connections who aggressively conduct tax avoidance are likely to have lower firm value. Finally, the positive association is more salient among non-state-owned enterprises (non-SOEs). This study provides useful insights for regulators to support strategies to reduce tax avoidance.