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Two Essays on the Accounting and Tax Effects of Business Connections

Jiang, Lingting
http://orcid.org/0000-0002-2304-1054
http://rave.ohiolink.edu/etdc/view?acc_num=ucin1721233164632868

Abstract Details

2024, PhD, University of Cincinnati, Business: Business Administration.
Business connections, including firms connected through the same investors and audit committee chairs connected via professional social network, play vital roles in the quality of firms’ financial statements and tax related decision-making. Business connections can facilitate the flow of information and the sharing of knowledge, enabling firms to make accounting and tax decisions more efficiently and to better serve their stakeholders. This dissertation comprises two essays that investigate how business connections affect firms’ financial accounting quality and tax avoidance decisions. In Essay I, I examine the effect of common ownership on tax avoidance. Common ownership can lead to reductions in agency costs, implementation costs, and outcome costs. These reductions, in turn, facilitate tax avoidance strategies within commonly owned firms, ultimately benefiting their investors. Additionally, due to the presence of a stronger corporate governance system, commonly owned firms are better equipped to enhance their internal information environment, enabling more accurate and efficient processing tax-related information. The empirical findings are consistent with these hypotheses, revealing a positive correlation between common ownership and tax avoidance, as well as a positive association between common ownership and the internal information quality. These results suggest that common ownership fosters tax avoidance practices and benefits shareholders, and the improved internal information environment serves as a conduit for managers to implement their tax avoidance strategies. A falsification test and a difference-in-differences analysis are conducted to address potential self-selection biases and path analysis is employed to reinforce the mediating role of internal information environment. In Essay II, we examine how audit committee professional networks impact firm audit quality and audit committee social networks. Specifically, we exam an audit committee professional network, Tapestry Networks, to analyze the differences in audit quality between Tapestry member firms and those unaffiliated, and the effects of the professional network on audit committee chair centrality. Tapestry Networks is an Ernst and Young sponsored audit committee group that provides confidential peer learning opportunities and engagement with audit professionals for selected public company audit committee chairs. We find that audit committee chairs who participate in Tapestry Networks have increased audit quality as compared to those who do not participate in the professional network. Additionally, we find that when an audit committee chair joins Tapestry, they have increased audit quality in subsequent periods. Tapestry audit committee chairs have greater dimensions of connectedness and larger, more focused networks, but continue to have increased audit quality as compared with non-members when controlling for their individual network centrality, demonstrating the importance of Tapestry specific involvement. Finally, when examining Tapestry audit committee members’ response during an exogenous shock by performing a difference-in-differences analysis during the Covid-19 period, we find that Tapestry member firms had better audit quality prior to the pandemic as compared to during the pandemic, demonstrating the importance of in-person Tapestry resources to the network.
Nan Zhou, Ph.D. (Committee Chair)
Alexander Borisov (Committee Member)
Adam Olson, Ph.D. (Committee Member)
Linna Shi, Ph.D. (Committee Chair)
126 p.
Accounting
common ownership; tax avoidance; audit committee; audit quality

Recommended Citations

Citations

  • Jiang, L. (2024). Two Essays on the Accounting and Tax Effects of Business Connections [Doctoral dissertation, University of Cincinnati]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=ucin1721233164632868

    APA Style (7th edition)

  • Jiang, Lingting. Two Essays on the Accounting and Tax Effects of Business Connections. 2024. University of Cincinnati, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=ucin1721233164632868.

    MLA Style (8th edition)

  • Jiang, Lingting. "Two Essays on the Accounting and Tax Effects of Business Connections." Doctoral dissertation, University of Cincinnati, 2024. http://rave.ohiolink.edu/etdc/view?acc_num=ucin1721233164632868

    Chicago Manual of Style (17th edition)

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This open access ETD is published by University of Cincinnati and OhioLINK.