Tax Planning and Financial Expertise in the Audit Committee

40 Pages Posted: 14 Sep 2012

See all articles by John R. Robinson

John R. Robinson

Texas A&M University; Texas A&M University - Department of Accounting

Yanfeng Xue

George Washington University - Department of Accountancy

May H. Zhang

Fordham University - Graduate School of Business Administration

Date Written: August 31, 2012

Abstract

Specialized knowledge allows expert directors to provide valuable advice while simultaneously monitoring managers. We investigate the advising and monitoring roles of corporate directors by examining the relation between firm tax planning and the level of financial expertise on the audit committee. Consistent with the advising function, we find that firms whose audit committees have high levels of accounting expertise are associated with higher levels of tax planning. Consistent with the monitoring function, we find that firms with higher levels of accounting expertise on the audit committee are associated with a lower likelihood of engaging in risky tax planning. Despite controlling for CEO compensation, we find that the strength of corporate governance is associated with an overall reduction in both tax planning and risky tax planning. In contrast, we find evidence that firms with higher levels of non-accounting financial expertise on the audit committee exhibit a significantly higher likelihood of engaging in risky tax planning.

Keywords: tax planning, financial expertise, audit committee, accounting expertise

JEL Classification: M41, G34, H26, G38

Suggested Citation

Robinson, John R. and Xue, Yanfeng and Zhang, May H., Tax Planning and Financial Expertise in the Audit Committee (August 31, 2012). Available at SSRN: https://ssrn.com/abstract=2146003 or http://dx.doi.org/10.2139/ssrn.2146003

John R. Robinson (Contact Author)

Texas A&M University ( email )

mail stop 4353
Mays School of Business
college state, TX 77843-4353
United States
979-845-3457 (Phone)
979-845-0028 (Fax)

Texas A&M University - Department of Accounting ( email )

430 Wehner
College Station, TX 77843-4353
United States

Yanfeng Xue

George Washington University - Department of Accountancy ( email )

School of Business and Public Management
Washington, DC 20052
United States

May H. Zhang

Fordham University - Graduate School of Business Administration ( email )

1790 Broadway, 13th FL
New York, NY 10019
United States

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