The effect of board of directors’ expertise and tax avoidance on corporate debt

Roman Lanis, Grant Richardson, Brett Govendir and Gregory Pazmandy

Accounting and Finance, 2021, vol. 61, issue 3, 4475-4511

Abstract: This study examines the effect of board of directors’ expertise and tax avoidance on corporate debt. We find that there is no association between financially expert outside directors on the board and corporate debt, which is contrary to some prior research findings. However, we do find a positive association between the proportion of financially expert inside directors on the board and debt. We also find that the debt substitution effect is significantly intensified by the presence of outside directors on the board with financial expertise, which suggests that the advice offered by these directors better informs managers to make decisions about the trade‐off between the benefits and costs of debt and non‐debt tax shields. We find no such effect for inside directors. Overall, this study extends the literature on corporate governance, tax avoidance and corporate debt.

Date: 2021
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https://doi.org/10.1111/acfi.12738

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