How Does Board Composition Shape Tax Effectiveness?

ABSTRACT

We investigate whether having various nationalities represented on a board of directors is associated with effective tax planning at the firm. We rely on upper echelons theory, which argues that an individual’s experiences, values, and personalities influence their interpretations of the situations they face and their decisions. We use a new tax effectiveness measure developed in prior literature that gauges a firm’s tax effectiveness using tax and non-tax costs. We find a positive association between board nationality heterogeneity and tax effectiveness, consistent with our hypothesis and the proposed role of board scrutiny in tax-relevant business decisions. Our study extends the research on board composition, tax-related decision-making, and how tax outcomes are determined.

Data Availability: All data used in this manuscript are publicly available.