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The Impact ofAuditor-Related Tax Services on Corporate Debt Pricing

journal contribution
posted on 2023-07-28, 05:52 authored by Steve Fortin, Jeff PittmanJeff Pittman
ABSTRACT: We examine the link between auditor-related tax services and corporate debt pricing. After controlling for security-level and other firm-level determinants, we provide strong, robust evidence that bondholders reward public firms that pay proportionately more tax fees to their auditor with lower yield spreads. Our results include that the influence of auditor-related tax services on lowering borrowing costs is stronger for issues made by firms suffering worse information asymmetry. This research, which helps to resolve whether audit quality hinges on the relative amount of tax services, may have important policy implications given that regulators continue to debate whether to impose further restrictions on the tax services that auditors can provide to their clients. Altogether, our evidence implies that the benefit of tax services in improving auditor knowledge—stemming from public accounting firms learning more about their clients over successive engagements—outweighs any concurrent sacrifice in auditor independence in shaping debt market perceptions.

History

Journal

JOURNAL OF THE AMERICAN TAXATION ASSOCIATION

Volume

30

Pagination

79-106

ISSN

0198-9073

eISSN

1558-8017

Language

English

Publication classification

C1.1 Refereed article in a scholarly journal

Issue

2

Publisher

AMER ACCOUNTING ASSOC