Tax Avoidance, Financial Experts on the Audit Committee, and Business Strategy
Journal of Business Finance and Accounting, Vol. 45, Issue 9-10, 2018
Posted: 4 Oct 2014 Last revised: 8 Nov 2018
Date Written: August 23, 2018
Abstract
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.
Keywords: Tax avoidance, tax aggressiveness, financial experts, board of directors, audit committee, business strategy
JEL Classification: H25, H26, M41, G3, L19, L21
Suggested Citation: Suggested Citation