Journal of the American Taxation Association · 2015 · 16 citations · 32 references
Economic ConsequencesCorporate TaxAccounting PracticeLawDeferred Prosecution AgreementAccounting FirmAuditingTax IncentiveCorporate TaxationFinancial AccountingTax PolicyTax LawEconomicsFinancial PenaltiesAccountingRegulatory EconomicsTax AvoidanceFinanceEconomic PolicyMoney LaunderingAccounting PolicyBusinessAudit RegulationAccounting AuditRegulationAccounting Rule
ABSTRACT This study investigates the effect of KPMG's Deferred Prosecution Agreement (DPA) on the accounting firm's ability to sell auditor-provided tax services (APTS) and its clients' tax avoidance. We document that following the DPA, clients were more likely to discontinue or reduce purchasing APTS from KPMG relative to the other Big 4 accounting firms. However, we do not find any evidence of a change in tax avoidance among KPMG clients continuing to purchase APTS following the DPA relative to other Big 4 clients. Broadly, our findings highlight how elevated reporting standards and external monitoring impose significant negative economic consequences on the service providers subject to these sanctions. At the same time, it appears clients do not suffer any observable tax costs by continuing to engage a sanctioned tax service provider.
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Sample Selection Bias as a Specification Error
James J. Heckman · Econometrica · 1979 · 28.4K citations