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Do information sources matter in corporate tax avoidance? The roles of peer effects and director interlocks

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  • Yi-Hsing Liao

    (Chung Yuan Christian University)

  • Teng-Sheng Sang

    (Chung Yuan Christian University)

  • Yuan-Tang Tsai

    (National Taipei University)

Abstract

How information sources affect a company’s tax avoidance behavior is an important but still unresolved issue. This paper examines the effect of information sources in the form of peer effects and director interlocks on corporate tax avoidance. We find that a company has a higher level of tax avoidance if its industry peers take an aggressive tax avoidance strategy, matching the herding effect found in tax avoidance behavior. The effect is stronger for firms with more connected directors, which is consistent with the spillover effect of tax avoidance behavior through shared directors. We further provide evidence suggesting that private information conveyed by interlocking directors is more valuable to a focal firm under a poor peer information environment. Overall, our empirical results suggest that private information spread by interlocking directors is more influential in industries with a poor peer information environment, supporting the view that the partial substitution of private information for public information is a valuable source of peer information.

Suggested Citation

  • Yi-Hsing Liao & Teng-Sheng Sang & Yuan-Tang Tsai, 2022. "Do information sources matter in corporate tax avoidance? The roles of peer effects and director interlocks," Review of Quantitative Finance and Accounting, Springer, vol. 59(1), pages 339-382, July.
    • Handle: RePEc:kap:rqfnac:v:59:y:2022:i:1:d:10.1007_s11156-022-01042-2
    DOI: 10.1007/s11156-022-01042-2
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    More about this item

    Keywords

    Tax avoidance; Peer effects; Director interlocks; Peer information environment;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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