Board Strength, Earnings management and tax avoidance in an international setting
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2022-08-22
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en
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This study examines the influence of board strength on tax avoidance and earnings management practices in an international setting. In this study, the strength of the board of directors as an internal corporate governance mechanism is assessed using the following components: board independence, an audit committee and board diversity. Using a multilevel panel data set including 5834 firms covering the period 2012-2019, the results indicate that depending on legal origin and the operationalization of board strength, a strong board of directors can both encourage and discourage tax avoidance. Furthermore, the results show that a strong board of directors reduce earnings management, but only for firms headquartered in common-law countries. Finally, the results indicate that a strong board of directors can reduce tax avoidance and earnings management at the same time for firms headquartered in common-law countries, due to a significant positive relationship between tax avoidance and earnings management. The results support the notion that combining several board components that a board of directors should have in order to be classified as strong, leads to an effective internal corporate governance mechanism, which can reduce socially irresponsible behavior by corporations in the form of tax avoidance and earnings management, depending on the legal origin of a country.
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Faculteit der Managementwetenschappen