The Effect of Auditor’s Length of Audit on Corporate Tax Avoidance

Understanding of external auditor’s behavior is important for higher audit quality. And the audit quality is an essential factor of firms’ sustainability. The purpose of this paper is to verify auditor behaviors toward corporate tax avoidance via auditor tenure. In particular, this study examines how the auditor independence issue is reflected in corporate tax avoidance. This study examines the association between auditor tenure and corporate tax avoidance by Using 2,588 firm－year observations from KOSPI in the period 2001－2010. We find that corporate tax avoidance increased with auditor tenure, reflecting, the client－beneficial tax planning, which minimizes tax payments that could be more offered when the auditor tenure increased. This suggests that the longer auditor tenure, the more likely auditor’s independence could be compromised. For the robustness of the empirical analysis results, factor analysis was performed on the four tax avoidance measures used in this study. And 2－stage analysis was performed. The additional analyses results supported the main result. This study contributes to the literature by extending the auditing and tax literature on the examination of auditor behavior toward corporate tax avoidance. Secondly, by investigating the impact of auditor tenure on corporate tax avoidance, this study proposes additional evidence regarding the debate on auditor independence. In addition, it is expected that the empirical results of this study will contribute to predicting the effect of the periodic designation system for auditors scheduled to be implemented in Korea from November 1, 2019.