Network Ties Among Low-Tax Firms

Abstract:     
Building upon the evidence in Brown (2011), this study examines (1) whether network ties help explain variation in tax avoidance, and (2) how the relation between network ties and tax avoidance varies depending on the nature and context of those ties. Drawing on social network theory, we posit that information on a range of tax avoidance strategies is shared among firms through their social network connections. Using board interlocks to proxy for these connections, we find that firms with greater board ties to low-tax firms have lower cash ETRs themselves. We also find that the association between a firm’s tax avoidance and its network ties varies depending on the nature of the firm’s ties. Social network ties are particularly influential when those ties involve network partners that are operationally and strategically similar and when those ties are created by executive directors.

Number of Pages in PDF File: 54

working papers series