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Journal of Business Ethics

Erschienen in:

30.08.2015

Board of Director Gender and Corporate Tax Aggressiveness: An Empirical Analysis

verfasst von: Roman Lanis, Grant Richardson, Grantley Taylor

Erschienen in: Journal of Business Ethics | Ausgabe 3/2017

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Abstract

This study examines the impact of board of director gender diversity on corporate tax aggressiveness. Based on a sample of 418 U.S. firms covering the 2006–2009 period (1672 firm-year observations), our ordinary least squares regression results show a negative and statistically significant association between female representation on the board and tax aggressiveness after controlling for endogeneity. Our results are consistent across several measures of tax aggressiveness and additional robustness checks.

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We define corporate tax aggressiveness in this study as the downward management of taxable income through tax-planning activities (e.g., Frank et al. 2009; Chen et al. 2010). It thus encompasses tax-planning activities that are legal or that may fall into the gray area, as well as activities that are illegal. Tax aggressiveness can thus range along a continuum with many cases falling in the disputed gray zone on that continuum (Hanlon and Heitzman 2010). In this study, we focus our attention on tax aggressive activities in the disputed gray zone of the continuum and beyond.

For instance, see the recently reported media cases of Amazon, Apple, Google, and Microsoft.

In terms of non-profit organizations, action has now moved beyond dialog into new regulations with the amended Form 990 that now places significant emphasis on corporate governance requirements (IRS 2010b).

In particular, over 70 % of U.S. boards have at least one female director, whereas only about 10 % have three or more women, and a mere 2 % of board chairs are women (GMI 2012).

For instance, the IRS requires large firms to file Schedule UTP Uncertain Tax Positions Statement with their 2011 and later tax returns. Given the presence of tax risks and the demands for greater transparency and disclosure by the SEC, the Senate and the IRS, corporate boards are now taking a closer look at how the firm manages its tax risks and compliance (Ernst and Young 2012).

All of the statements made by Mr. Shulman here were later confirmed by the then deputy Commissioner for Services and Enforcement, Steven T. Miller in his address to the American Bar Association Tax Section on May 7, 2010 (Skadden et al. 2010).

Reportable transactions include transactions involving tax shelters and any tax-structured transactions designed to significantly reduce corporate taxes payable. Also, any tax statement about a reportable transaction made by a corporate advisor (e.g., an auditor) will be attributed to the firm or principal (including the board of directors).

Specifically, the board of directors must ensure completion, signing and filing of IRS Form 1120: “U.S. Corporation Income Tax Return” and IRS Form 1120-W “Estimated Tax for Corporations” on a quarterly basis, and confirm that the firm pays estimated income taxes on the profits they expect to earn for that year.

We note that as ETR1 is based on total tax expense, it does not reflect the deferral of income recognition for tax reporting purposes.

We note that ETRs are truncated to the 0–1 range in this study in line with prior research (e.g., Chen et al. 2010; Cheng et al. 2012; McGuire et al. 2012).

Mills et al. (1998) find that firms with greater book-tax gaps have larger IRS audit adjustments, which is consistent with higher levels of tax aggressiveness.

Taxable income is computed as the sum of current federal tax expense and current foreign tax expense divided by the statutory tax rate of 35 % (e.g., Hanlon and Heitzman 2010).

A brief description of the method developed by Desai and Dharmapala (2006) for computing the BTG residual is provided in Appendix 2.

Following Beasley (1996), we exclude blocks held by family firms or trusts, employee share ownership plans, and corporate retirement plans from the calculation of BLOCKHLD as the voting rights associated with these shares are normally controlled by top management of the firm.

Endogeneity could possibly exist in our study. For example, if firms are more socially responsible they are less willing to engage in tax aggressiveness because they believe corporate taxes help society (Lanis and Richardson 2012), so they are more likely to make an effort to have greater diversity of board members.

The results of the first-stage probit regression are reported in Table 3.

Specifically, the pooled sample is represented by 862 observations with 431 corresponding matched pairs for each of the tax aggressiveness measures.

To further address endogeneity concerns of PFEMBOD in our study, we follow prior research (e.g., Rajgopal and Shevlin 2002; Coles et al. 2008) and use lagged values of TAG (i.e., ETR1, ETR2, BTG1, and BTG2) as the dependent variable. Inferences remain the same when TAG is lagged in our empirical analysis.

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Titel: Board of Director Gender and Corporate Tax Aggressiveness: An Empirical Analysis
verfasst von: Roman Lanis
Grant Richardson
Grantley Taylor
Publikationsdatum: 30.08.2015
Verlag: Springer Netherlands
Erschienen in: Journal of Business Ethics / Ausgabe 3/2017
Print ISSN: 0167-4544
Elektronische ISSN: 1573-0697
DOI: https://doi.org/10.1007/s10551-015-2815-x

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