Table 9.

Operational Audits

Panel A. Business Failure
	(1)		(2)		(3)	(4)	(5)	(6)
	DV: Out of Business					DV: Defunct
Audited	0.030***		0.053***		-0.002	0.038***	0.063***	0.006
	(3.478)		(4.53)		(-0.12)	(9.879)	(10.45)	(1.42)
Size	-0.010***		-0.008		-0.016***	0.000	0.000	-0.001
	(-2.912)		(-1.61)		(-3.52)	(0.340)	(0.11)	(-1.13)
Net Income	-0.050		-0.087*		-0.041	-0.001	-0.040	0.012
	(-1.643)		(-1.81)		(-1.07)	(-0.102)	(-1.19)	(1.50)
Wages	-0.014***		-0.017***		-0.008***	-0.002***	-0.003***	0.000
	(-13.492)		(-12.89)		(-5.32)	(-3.553)	(-3.64)	(0.76)
DIF	-0.017***		-0.019***		-0.012**	-0.003*	-0.002	-0.002
	(-5.161)		(-4.33)		(-2.39)	(-1.898)	(-0.90)	(-1.28)
Distress	0.005***		0.005***		0.006***	0.007***	0.007***	0.005* **
	(5.095)		(3.06)		(3.91)	(11.094)	(7.77)	(7.41)
Intercept	0.533***		0.563***		0.533***	0.011	0.019	0.015
	(14.733)		(9.77)		(11.35)	(0.782)	(0.64)	(1.30)
Sample	Full sample		Noncompliant firms		Compliant firms	Full sample	Noncompliant films	Compliant firms
N	9,110		5,026		4,084	9,110	5,026	4,084
R-Squared	0.059		0.077		0.044	0.033	0.044	0.027
Panel B. Flow-through Conversions and Preparer Changes
	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)
	DV: Convert to S-Corp			DV: Apply for now-through EIN			DV: Change Preparer
Audited	0.035***	0.062***	0.002	0.028***	0.031***	0.024**	0.027***	0.030**	0.025
	(4.82)	(6.20)	(0.22)	(4.01)	(3.21)	(2.34)	(2.589)	(2.10)	(1.60)
Size	0.003	0.010***	-0.003	0.000	0.005	-0.002	0.004	0.004	0.005
	(1.36)	(3.53)	(-1.20)	(0.13)	(1.26)	(-0.58)	(1.120)	(0.80)	(1.06)
Net Income	0.421***	0.473***	0.384***	0.020	0.048	0.006	-0.023	-0.195	0.190
	(4.47)	(3.64)	(2.83)	(0.98)	(1.56)	(0.22)	(-0.165)	(-1.03)	(0.92)
Wages	0.001	0.001	-0.000	-0.006* **	-0.007***	-0.006***	0.004***	0.006***	0.001
	(0.67)	(1.22)	(-0.06)	(-7.68)	(-6.10)	(-4.61)	(3.201)	(3.86)	(0.37)
DIF	0.009***	0.006*	0.015***	0.005**	0.004	0.004	0.003	0.002	0.003
	(4.26)	(1.92)	(4.49)	(2.00)	(1.41)	(1.17)	(0.683)	(0.48)	(0.53)
Distress	0.002**	0.002	0.001	0.004***	0.004***	0.003**	0.007***	0.008***	0.005***
	(2.13)	(1.36)	(1.14)	(4.16)	(3.18)	(2.57)	(5.133)	(4.50)	(2.60)
Intercept	0.010	-0.085***	0.077***	0.131***	0.078*	0.160***	0.369***	0.343***	0.383***
	(0.47)	(-2.61)	(2.76)	(4.60)	(1.84)	(4.20)	(9.682)	(5.53)	(7.87)
Sample	Full sample	Noncompliant firms	Compliant firms	Full sample	Noncompliant finns	Compliant finns	Full sample	Noncompliant finns	Compliant finns
N	9,110	5,026	4,084	9,110	5,026	4,084	9,110	5,026	4,084
R-Squared	0.012	0.018	0.010	0.012	0.010	0.055	0.046	0.078	0.044

This table presents our results using the operational audit sample. We examine several of the results from the NRP sample. In Panel A, we examine business failure using the dependent variables Out of Business (columns 1–3) and Defunct (columns 4–6). In Panel B we examine firms’ benefits from audits. The dependent variables are Convert to S-Corp in columns 1–3, Apply for Flow-through EIN in columns 4–6, and Change Preparer in columns 7–9. The independent variable of interest is Audited, which indicates whether a firm was audited as part of the IRS’s standard operational audits. The sample consists of 4555 audited firms and 4555 control firms (one observation per firm). We include control variables to control for differences in covariates. All variables are defined in Appendix 1. Robust t-statistics are presented below the coefficients in parentheses. ***, **, * denotes statistical significance at the 10, 5, or 1% level, respectively.