The Tax Litigation–auditor change nexus: strategic rotation patterns in Brazil’s hyper-litigious environment

Purpose:This study investigates how tax litigation influences the voluntary auditor rotation decisions among publicly traded companies in Brazil, characterized by an exceptionally high level of tax litigation. Design/methodology/approach:We conducted a logistic regression analysis using panel data from Brazilian companies listed on the B3 stock exchange from 2014 to 2023. The main independent variable, tax litigation, was measured through tax-related provisions and contingent liabilities as a proportion of total assets. Control variables included company size, Big Four auditor presence, and periods of economic crisis (COVID-19). Findings:Results indicate that tax litigation significantly increases the likelihood of voluntary auditor rotation. Specifically, each percentage point increase in tax litigation relative to total assets raised the probability of auditor change by approximately 2.58 percentage points. Company size was positively associated with auditor changes, while Big Four audit firm engagement and economic crisis periods decreased this probability. Research limitations/implications: Limitations include using financial provisions and contingent liabilities as proxies for litigation, potentially not capturing all nuances of tax disputes. The sample was restricted to publicly listed firms, limiting generalizability. Practical implications: Findings inform auditors about client retention strategies in high-litigation contexts and assist regulators in designing policies to improve tax compliance and audit quality. Social implications: Enhancing transparency in auditor-client relationships can reduce information asymmetry and improve investor confidence in emerging markets. Originality/value:This research addresses a gap by examining auditor rotation as a governance response specifically linked to tax litigation in Brazil, providing insights into corporate governance adaptation to extreme regulatory challenges.

Authors

Publication Details

Journal
Revista de Administração da UFSM
Published
2025-09-12
DOI
https://doi.org/10.5902/1983465992051
Primary Topic
Corporate Taxation and Avoidance
Type
article
Field-Weighted Citation Impact
0.00
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article

The Tax Litigation–auditor change nexus: strategic rotation patterns in Brazil’s hyper-litigious environment

Ana Clara Fonseca do Amaral, Camila Viana Brasil, Antônio Lopo Martinez, Laura Edith Taboada Pinheiro et al.
Revista de Administração da UFSM
Corporate Taxation and Avoidance
article

The Tax Litigation–auditor change nexus: strategic rotation patterns in Brazil’s hyper-litigious environment

Ana Clara Fonseca do Amaral, Camila Viana Brasil, Antônio Lopo Martinez, Laura Edith Taboada Pinheiro, Larissa Ribeiro Soares
article en

Abstract

Purpose:This study investigates how tax litigation influences the voluntary auditor rotation decisions among publicly traded companies in Brazil, characterized by an exceptionally high level of tax litigation. Design/methodology/approach:We conducted a logistic regression analysis using panel data from Brazilian companies listed on the B3 stock exchange from 2014 to 2023. The main independent variable, tax litigation, was measured through tax-related provisions and contingent liabilities as a proportion of total assets. Control variables included company size, Big Four auditor presence, and periods of economic crisis (COVID-19). Findings:Results indicate that tax litigation significantly increases the likelihood of voluntary auditor rotation. Specifically, each percentage point increase in tax litigation relative to total assets raised the probability of auditor change by approximately 2.58 percentage points. Company size was positively associated with auditor changes, while Big Four audit firm engagement and economic crisis periods decreased this probability. Research limitations/implications: Limitations include using financial provisions and contingent liabilities as proxies for litigation, potentially not capturing all nuances of tax disputes. The sample was restricted to publicly listed firms, limiting generalizability. Practical implications: Findings inform auditors about client retention strategies in high-litigation contexts and assist regulators in designing policies to improve tax compliance and audit quality. Social implications: Enhancing transparency in auditor-client relationships can reduce information asymmetry and improve investor confidence in emerging markets. Originality/value:This research addresses a gap by examining auditor rotation as a governance response specifically linked to tax litigation in Brazil, providing insights into corporate governance adaptation to extreme regulatory challenges.

Revista de Administração da UFSMVol. 18(3)
Openalex Percentile: Top 63%
Corporate Taxation and Avoidance
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