Do Big4-Auditors incorporate better tax planning expertise in their audit services

Corporate tax savings when hiring a Big 4 auditor: Empirical evidence for Belgium B. Janssen, H. Vandenbussche, K. CrabbéCatholic University of Leuven March 2005 ABSTRACT In this paper we show that hiring a Big 4 auditor results in substantial corporate income tax savings, compared to hiring a non-Big 4 auditor. Our results are obtained from an empirical model that controls for other factors that may affect companies’ income tax burdens. We use a population of larger Belgian firms between 1993 and 2002. The findings suggest that Big 4 audited firms provide (explicitly or implicitly) additional tax expertise which is transferred to their clients and lowers their effective tax rates compared to non-Big 4 audited firms. Keywords: Belgian firms, Big 4 Auditor, Effective Tax Rates, financial statements Address for correspondence: Boudewijn Janssen, Faculty of Law, Universiteit Maastricht, P.O.Box 616, 6200 MD Maastricht, The Netherlands, T: + 31 43 388 3202, Email: boudewijn.janssen@belastr.unimaas.nl We thank the Research Council of the Catholic University of Leuven for funding this research. We thank Willem Buijink, Staf van Herck, Heidi Vander Bauwhede, Ann Vanstraelen and Marleen Willekens for comments. 1 1. Introduction In July 2002, the US introduced the Sarbanes-Oxley Act as a result of recent company debacles. One of the features of this act is the mandatory separation of audit and non-audit services. Shortly after this ...