Tax avoidance, financial experts on the audit committee, and business strategy

• Published in: Journal of business finance & accounting Vol. 45; no. 9-10; pp. 1293 - 1321
• Main Authors: Hsu, Pei‐Hui, Moore, Jared A., Neubaum, Donald O.
• Format: Journal Article
• Language: English
• Published: Oxford Blackwell Publishing Ltd 01.10.2018
• Subjects: Accounting; audit committee; Audit committees; Audits; board of directors; Business; business strategy; Corporate tax planning; Corporate taxes; Experts; financial experts; High risk; Innovations; Risk; tax aggressiveness; Tax avoidance; Taxation
• ISSN: 0306-686X; 1468-5957
• DOI: 10.1111/jbfa.12352

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.