Corporate Governance and Corporate Tax Avoidance : A Stakeholder Perspective

Research question/issue: How does corporate governance affect corporate tax avoidance?Research findings/insights: Applying a stakeholder-oriented view, we find that various aspects of corporate governance institutions, such as management compensation, board characteristics, ownership structure, audit, stakeholder pressure and CSR performance & reporting have a strong influence on corporate tax avoidance. Findings indicate that strong corporate governance quality steers tax avoidance at its firm-specific optimal level. It crucially depends on the strength of corporate governance institutions whether a given level of tax avoidance is beneficial or harmful to the firm.Theoretical/academic Implications: The classical principal-agent theory is insufficient in explaining corporate tax avoidance. Investigating the determinants of corporate tax avoidance requires a more comprehensive approach taking into account corporate governance institutions and all stakeholders that are relevant to the firm. This review underlines that taxation is not merely a sub-discipline of accounting but spreads out into all areas of economics and business research and even into neighboring disciplines like psychology, sociology, political and administrative science.Practitioner/policy Implications: To practitioners, we show how strongly developed corporate governance institutions have the potential to increase tax avoidance, making firms more profitable, but also to limit tax avoidance to a level where the arising risks do not outweigh the benefits. To policy makers, we reinforce the necessity of strict tax enforcement with high rates of audit to prevent corporate taxpayers from avoiding taxes. Furthermore, we show that internal monitoring, e.g. by audit committees and independent board members can effectively complement external tax enforcement