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Title
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Audit quality and tax-induced earnings management in UK private firms
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Author
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Abstract
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| This paper examines audit quality and tax-induced earnings management in UK private (i.e. non-listed) firms. Tax incentives are considered to play a large role in private firms earnings management behavior. While Big 4 auditors are generally considered to provide a higher audit quality compared to non-Big 4 auditors, we expect that Big 4 auditors in a weak tax alignment country have weak incentives to constrain tax-induced earnings management. Moreover, Big 4 auditors arguably possess a higher expertise in providing tax advice, which is allowed under the EC recommendation on auditor independence. We provide evidence that UK firms engage more in income-decreasing earnings management and have lower relative tax burdens when they have a Big 4 auditor. These results imply that Big 4 auditors seem to help their clients in engaging in tax-induced earnings management. |
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Language
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English
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Source (series)
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Research paper / UA, Faculty of Applied Economics , 2007:4
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Publication
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Antwerp
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UA
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2007
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Volume/pages
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29 p.
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Full text (open access)
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