Do academic directors on audit committees affect corporate tax avoidance?

Abstract

This study examines whether academic directors on audit committees affect corporate tax avoidance. Using a sample of Chinese listed firms, we find that academic directors on audit committees reduce tax avoidance. Quantile regression analyses show that academic directors reduce tax avoidance for over-sheltered firms, but there is no evidence to support their impact on tax avoidance for under-sheltered firms. We also find that academic directors limit the use of income shifting and transfer pricing as tax avoidance strategies. Moreover, the negative relationship between academic directors and tax avoidance does not vary with the severity of agency conflicts measured by the separation of voting and cash flow rights. These results imply that academic directors are effective monitors in curbing aggressive tax avoidance, but they do not play an advisory role in tax planning, probably due to a lack of tax-related industry experience. Our results are robust to endogeneity concerns. This study contributes to the literature on board diversity and sheds light on the influence of corporate governance on tax avoidance.