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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2022 Annual Theme: Stakeholder Capitalism
Market-Based Solutions to Vital Economic Issues
Feb 22, 2019

Taxes And Director Independence: Evidence From Board Reforms Worldwide


We examine whether changes to corporate governance arising from board reforms affect corporate tax behavior. While the relation between corporate governance and tax behavior has been the subject of intense interest in the literature, prior research has been hampered by a lack of exogenous variation. Our inquiry exploits a set of major board reforms that captures shocks to director independence for firms in 31 countries. The results indicate that corporate tax avoidance decreases significantly following major board reforms. We find that the effect of board reforms on corporate tax behavior is stronger in firms with relatively higher agency costs and more opaque information environments.

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