Do auditors constrain intertemporal income shifting in private companies?

Research output: Contribution to journalArticleScientificpeer-review

16 Citations (Scopus)


This study investigates the association between private company auditing and intertemporal income shifting. Using a large reduction in the Finnish corporate tax rate as a strong incentive for income shifting and financial statement data coupled with proprietary information from the tax authorities, we analyse accruals and cost stickiness of small private companies. Our results reveal significant differences in accrual income shifting between audited and unaudited companies, but only among companies that on average could anticipate the tax reduction the most. Further, we find auditors to restrict sticky selling, general, and administrative cost behaviour that we hypothesise is associated with illegal actions. Additional tests expose a nontrivial number of incorrectly unaudited companies which are the ones mostly associated with income shifting. Taken together, our study highlights the effects of audit exemption and the importance of enforcement while also suggesting that the audit process is value adding for the tax authorities.
Original languageEnglish
Peer-reviewed scientific journalAccounting and Business Research
Issue number3
Pages (from-to)245-270
Number of pages26
Publication statusPublished - 16.04.2019
MoE publication typeA1 Journal article - refereed


  • 512 Business and Management
  • audit exemption
  • cost stickiness
  • earnings management
  • tax incentive

Areas of Strength and Areas of High Potential (AoS and AoHP)

  • AoS: Financial management, accounting, and governance


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