Tax Aggressiveness, External Monitoring and Modified Audit Opinion

Abstract

Abstract: Using the data of Chinese A-share listed non-financial companies in the period of 2007-2015, this paper investigates the effect of tax aggressiveness (measured by difference between the statutory corporate income tax rate and ETR, book-tax difference, and the Desai-Dharmapala measure of book-tax differences) on auditor's propensity to issue modified audit opinions (thereafter MAO). The results show that there is no significant association in general between tax aggressiveness and MAO. When external monitoring mechanisms (represented by institutional holding and analyst coverage) are effective, however, the association of tax aggressiveness and MAO will be negatively moderated. On the contrary, legal environment can positively moderate the association between tax aggressiveness and MAO. Further tests show that the negative moderating role of institutional holding and analyst coverage only exists when the legal environment is weak.

Key words: tax aggressiveness, institutional investor, analyst following, legal environment, audit opinion

Liu Xiaoxia, Li Minghui. Tax Aggressiveness, External Monitoring and Modified Audit Opinion[J]. Management Review, 2020, 32(6): 280-291.

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