Involvement in Offshore Financial Centers and Audit Fees: Evidence from U.S. Multinational Firms

Wenxia Ge, Jeong-Bon Kim, Tiemei Li and Sanjian William Zhang

European Accounting Review, 2023, vol. 32, issue 4, 995-1023

Abstract: This study examines how a U.S. firm’s involvement in offshore financial centers (OFCs), by setting up subsidiaries or affiliates in OFCs, is associated with audit fees. After controlling for tax aggressiveness, firm strategy, international operation, and other firm characteristics, we find that U.S. multinational enterprises (MNEs) with OFC operations pay higher audit fees than U.S. MNEs without OFC operations. In addition, a greater extent of OFC operations is further associated with higher audit fees. This result is robust to using different measures of OFC involvement and controlling for issues of self-selection, endogeneity, and joint determination effect of audit and non-audit fees. We also find that a higher level of OFC operations is associated with higher audit risk, as measured by internal control weaknesses and the probability of financial reporting-related litigation. Further analysis shows that the audit fee increasing effect of OFC involvement is unlikely to be driven by corporate tax planning strategy and tax rate differential between the U.S. and OFCs, but driven by the regulatory arbitrage opportunities and secrecy policies of OFCs. In sum, this paper contributes to the literature on audit fees and OFCs.

Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/09638180.2022.2049334 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:euract:v:32:y:2023:i:4:p:995-1023

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/REAR20

DOI: 10.1080/09638180.2022.2049334

Access Statistics for this article

European Accounting Review is currently edited by Laurence van Lent

More articles in European Accounting Review from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().