Do Auditor-Provided Tax Services Impair Auditor Independence or Generate Knowledge Spillover? Evidence from the Tax Cuts and Jobs Act of 2017

Regulators increasingly express concerns over auditor-provided tax services (APTS) because those services could impair auditor independence. To date, research on the impact of APTS on auditor independence has yielded mixed results, potentially due to endogeneity issues, providing no clear guidance to regulators. I leverage the Tax Cuts and Jobs Act of 2017 (TCJA), which resulted in an unexpected shock to tax complexity that increased the demand for APTS by multinational firms, and a difference-in-differences research design to provide new insight into this relation. I document that multinational firms most likely affected by the TCJA have a significant increase in APTS fees and audit quality after the enactment of the TCJA. The effect concentrates in clients that are more complex and in restatement types that are likely to be associated with the knowledge spillover, suggesting knowledge spillover is a potential channel for APTS to affect audit quality