We examine whether financial expert audit committee members tailor their approach to overseeing the corporate tax planning process according to the firm's business strategy. We predict and find that such directors encourage defender‐type firms (characterized partially by high risk aversion) to engage in more tax avoidance activities and prospector‐type firms (characterized partially by innovation and risk seeking) to scale back on tax avoidance, relative to the opposing strategy type. We also find that both accounting experts and non‐accounting financial experts on the audit committee contribute to our results to some extent, although the effects of non‐accounting financial experts present more consistently. Overall, our results suggest that financial experts on the audit committee tend to play more of an advising role for defenders and more of a monitoring role for prospectors, relative to one another.

We examine the relationship between the board of directors and earnings persistence. We define the advisory role of board members as providing strategic counsel to top management. We argue that strategic counseling provided by the board helps create and sustain growth, which, in turn, translates into more persistent earnings. We find that for firms whose boards are dedicated to advising, earnings are more persistent and the association between earnings and future cash flows is higher, compared with firms whose boards are not focused on advising. We further find that advising by boards increases the persistence of both the cash flows component and the accruals component of current earnings. In additional analyses, we fail to find a consistently positive correlation between boards with intensive monitoring and more persistent earnings. Putting together, these results suggest that the relation between board structure and earnings persistence is more likely driven by the advisory role and less likely by the monitoring function of the board of directors.

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