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

See all articles by Pei Hui Hsu

Pei Hui Hsu

California State University, East Bay - School of Business & Economics

Jared A. Moore

Western Washington University

Donald O. Neubaum

Oregon State University

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

Hsu, Pei Hui and Moore, Jared A. and Neubaum, Donald O., Tax Avoidance, Financial Experts on the Audit Committee, and Business Strategy (August 23, 2018). Journal of Business Finance and Accounting, Vol. 45, Issue 9-10, 2018, Available at SSRN: https://ssrn.com/abstract=2504845 or http://dx.doi.org/10.2139/ssrn.2504845

Pei Hui Hsu (Contact Author)

California State University, East Bay - School of Business & Economics ( email )

25800 Carlos Bee Boulevard
Hayward, CA CALIFORNIA 94542
United States

Jared A. Moore

Western Washington University ( email )

Bellingham, WA 98225-9071
United States
360-650-6252 (Phone)

Donald O. Neubaum

Oregon State University ( email )

Bexell Hall 200
Corvallis, OR 97331
United States

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