Collusion or supervision? Between auditor and audit firm - tax planning's perspective

PurposeThis study aims to investigate the impact of auditor industry specialization (AIS) on clients' tax planning at the audit firm level and individual auditor level, respectively.Design/methodology/approachThe study's sample consists of 44,637 firm-year observations of Chinese firms listed on the Shenzhen and Shanghai Stock Exchanges during the period from 2002-2020. The data are collected from the Taiwan Economic Journal. Panel regression is used to test hypotheses. Additionally, a two-stage least squares model is used to address concerns about possible endogeneity.FindingsThe relationship between tax planning and AIS is significantly positive at the audit firm level, while it is significantly negative at the individual auditor level.Originality/valueThe authors use manually collected data to investigate the distinct impacts of two AIS metrics on tax planning: the number of clients and the scale of clients.