Directors with foreign experience and corporate tax avoidance

Wen, Wen; Cui, Huijie; Ke, Yun

doi:10.1016/j.jcorpfin.2020.101624

Cited by 141 publications

(100 citation statements)

References 83 publications

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“…They provided evidence that managers minimise profit for tax purposes when the number of AC members is less than three directors, whereas companies with three or more AC directors find it difficult to engage in tax avoidance practices. Wen et al (2020) found that AC directors with foreign experience have a significant effect on mitigating aggressive engagement in tax avoidance strategies. These directors are concerned about their reputational image across different countries; therefore, they exercise their strict function of monitoring management to reduce the tax avoidance level.…”

Section: Impact Of Overlapped Ac Membership On Tax Avoidancementioning

confidence: 99%

Do Overlapped Audit Committee Directors Affect Tax Avoidance?

Lawati

Hussainey

2021

JRFM

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This research is motivated by the Omani government’s desire to reduce tax avoidance and bolster tax revenue collected from financial institutions. The purpose of this paper is to examine the impact of overlapped audit committee (AC) chairs and other directors on tax avoidance practice and whether they play a monitoring or advisory role in tax avoidance practice. As a measure of overlapped AC chairs, we used a dummy variable to indicate whether an AC chair sits on other committees within a company or not. We used the proportion of AC members who serve on the AC and other committees within a company as our proxy for overlapped AC directors. We used a company’s cash effective tax rate as a proxy for tax avoidance. We regressed tax avoidance on overlapped AC membership and other control variables, using a sample of 204 firm-year observations from financial institutions listed on the Muscat Stock Exchange between 2014 and 2019. Our regression results show that a higher proportion of overlapped AC members and the presence of an overlapped AC chair were both associated with lower effective tax rates, which equated to more tax avoidance. This suggests that these directors play an advisory role in the Omani context. We found, however, that these directors play a monitoring role when firms take a loss. From these findings, we draw important implications for regulators who need to rethink the potential consequences of having overlapped AC chairs and AC directors. Our study focuses on Omani financial institutions, which are highly regulated and monitored by the central bank, and our findings may not be directly applicable to non-financial institutions that are less regulated, so caution is needed when interpreting the findings. Further research could employ a repeated measured research design, such as ours, and explore the same research question in non-financial institutions.

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Section: Impact Of Overlapped Ac Membership On Tax Avoidancementioning

confidence: 99%

Do Overlapped Audit Committee Directors Affect Tax Avoidance?

Lawati

Hussainey

2021

JRFM

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“…They find that more socially responsible firms are less likely to engage in tax avoidance and that having an outside director on the board magnifies this negative association between CSR performance and tax aggressiveness. Wen et al (2020) use China as a setting and find that firms that hire directors with international experience engage in less tax avoidance. They find that this is because these international directors are more concerned about the reputational costs of tax avoidance and are more likely to promote CSR awareness, which involves reducing tax avoidance behavior.…”

Section: Moderators Of the Csr And Tax Avoidance Relationshipmentioning

confidence: 99%

A Review of Corporate Social Responsibility and Reputational Costs in the Tax Avoidance Literature*

Krieg

2021

Accounting Perspectives

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In recent years, academic researchers, policymakers, and the public have increasingly focused on the tax avoidance behavior of corporations. At the same time, firms are increasingly pressured to incorporate corporate social responsibility (CSR) into their decision making, leading to heightened academic interest in CSR. Given that opponents of corporate tax avoidance often argue that avoiding tax is socially irresponsible, we review the growing literature surrounding this issue. We begin with a theoretical review of how corporate tax avoidance fits into the CSR framework. We then review the empirical evidence on the interrelationship between CSR and firm reputation in the tax avoidance literature. We frame our review around three questions: (i) Do firms view tax avoidance as a CSR issue? (ii) Do stakeholders view tax avoidance as socially irresponsible, leading to reputational costs of tax avoidance? And (iii) Do firms change their tax avoidance behavior due to fear of these reputational consequences? Throughout our review, we provide discussions on the state of the current literature and offer suggestions for future research opportunities.

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“…these provinces have more chances to experience Western culture (Wen et al, 2020). Moreover, the early openness of these regions makes them more easily to attract foreign talents due to their Western-style lifestyles.…”

Section: Instrumental Variable Approachmentioning

confidence: 99%

The Impact of Board Internationalization on Real Earnings Management: Evidence From China

Ashraf

Qian

2021

Sage Open

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In this article, we examine the impact of board internationalization on real earnings management. Using the annual data of 2,899 Chinese listed non-financial firms with 16,638 firm-year observations over the period from 2008 to 2017 for empirical analysis, we find robust evidence that higher proportion of foreign directors on corporate boards reduces real earnings management. Results support the hypothesis that foreign directors increase boards’ effectiveness in monitoring the management and, consequently, lead to less earnings management by corporate executives. Our results are robust to alternative measures of board internationalization, instrumental variable analysis, and adding additional control variables. We further observe that foreign directors are more effective in reducing earnings management in firms with local directors with foreign experience and in Chinese provinces with developed institutional environment. Moreover, Chinese firms complement accrual and real activities–based earnings management, and board internationalization is effective in reducing both types of earnings management. Overall, our findings imply board internationalization improves the quality of reported earnings to outside shareholders.

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Directors with foreign experience and corporate tax avoidance

Cited by 141 publications

References 83 publications

Do Overlapped Audit Committee Directors Affect Tax Avoidance?

Do Overlapped Audit Committee Directors Affect Tax Avoidance?

A Review of Corporate Social Responsibility and Reputational Costs in the Tax Avoidance Literature*

The Impact of Board Internationalization on Real Earnings Management: Evidence From China

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