Do women on corporate boardrooms have an impact on tax avoidance? The mediating role of corporate social responsibility

• DOI: https://doi.org/10.1108/CG-07-2021-0265
• Published date: 07 December 2021
• Date: 07 December 2021
• Pages: 821-845
• Subject Matter: Strategy,Corporate governance
• Author: Anissa Dakhli

Do women on corporate boardrooms

have an impact on tax avoidance?

The mediating role of corporate

social responsibility

Anissa Dakhli

Abstract

Purpose –The purpose of this paper is to investigate the direct and indirect relationship between board gender

diversity and corporate tax avoidance using corporate social responsibility (CSR) as a mediating variable.

Design/methodology/approach –This study uses a panel dataset of 200 French firms listed during

2007–2018 period. The direct and indirect effects between board gender diversity (BGD) and tax

avoidancewere tested by using structural equation modelanalysis.

Findings –The results indicate that the presence of women on corporateboardrooms negatively affects tax

avoidance. The greater the proportion of women in boards, the lower the lik elihood of tax avoidance practice.

In the mediation test, CSR appears to partially mediate the link between women on boards an dco rporate tax

avoidance. Additionalanalysis shows that the social dimension of CSR produces this mediating effect.

Practical implications –The results have practical implications for companies in regulating the

compositionof their boards. To benefit from diversity, firms have to increasewomen‘s percentage in their

boards of directors.Also, investors are encouraged to pay attentionto the percentage of female directors

when investingand purchasing shares.

Social implications –This study proved empirically that the higher proportion of female directors

significantly reducesthe possibility of tax avoidance either directly or indirectly through enhancingCSR

performance. The findingsshow that firms with gender diversified boards are more likelyto get involved

in CSR for hedging againstthe potential consequences of aggressivetax avoidance practices. In light of

the above results, firms arewell-advised to strongly apply the policy encouraging or mandatingwomen

as board membersto take advantage of their expected benefits.

Originality/value –The originality of this paper consists in proposing the establishmentof both direct

and indirect relationshipsbetween BGD and corporate tax avoidance through CSR. Unlike prior studies

that have been examining the direct relationship between corporate governance mechanisms and

corporatetax avoidance, this study went further to investigatethe indirect relationship betweenthese two

constructs. This study also differs from prior studies as it examines the effect of BGD on each of

constituting pillarsof CSR, namely, environmental, social and governance. To date, an extensivepart of

CSR research has used the combinedscore of CSR, but the effects on different CSR pillars remainlittle

investigated.

Keywords Corporate social responsibility,Board gender diversity, Tax avoidance, CSR-pillars, French f‌irms

Paper type Research paper

1. Introduction

Tax avoidance has attracted a growing attention in the recent research literature

(Kovermann and Velte, 2019;Zolotoy et al.,2021;Khan et al.,2017;Jiang, 2021;Bauer

et al., 2018;Zeng, 2019;Mouakhar et al.,2020;Rahman and Leqi, 2021). Corporate tax

avoidance is commonly defined as actions that reduce a firm’s taxes relative to its pre-tax

Anissa Dakhli is based at

the Department of

accounting, University of

Sousse, Sousse, Tunisia.

Received 23 July 2021

Revised 7 September 2021

5 October 2021

Accepted 19 October 2021

DOI 10.1108/CG-07-2021-0265 VOL. 22 NO. 4 2022, pp. 821-845, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 821

accounting income (Hanlon and Heitzman, 2010). In fact, taxes have been considered

a material cost for companies and minimize the cash flow available for their owners

(Suranta et al., 2020). Therefore, it is a stimulant for companies to reduce taxes

expense through tax avoidance strategies (Chen et al.,2010). In this regard, tax

avoidance is an effort undertaken legally and safely by companies without violating the

applicable taxation provisions, as methods and techniques used are to take

advantages of weaknesses contained within the Tax Laws and Regulations (Napitupulu

et al.,2019

).

Prior studies have examined corporate governance system as determining factor in

decision-making to undertake tax avoidance (Bayar et al., 2018;Govindan et al.,2021;

Jarboui et al.,2020). The most relevant part of this systemis the presence of a dynamic and

coherent board of directors (Saleem et al.,2021). Boards have a potentially critical role to

play in mitigating agency problems (Fama, 1980;Jensen and meckling, 1976;Aslam and

Haron, 2021;Barros et al., 2021), designing and implementing strategy and fostering links

between the firm and its external environment (Arora and Bodhanwala, 2018). The board of

directors bears the ultimate responsibility for the tax affairs of the company (Nadeem et al.,

2017) and is held accountable for them by shareholders and other stakeholders (Zemzem

and Ftouhi, 2013). A number of researchers have investigated the relationship between

board structure and corporate tax avoidance (Barros and Sarmento, 2020;Lanis et al.,

2019;Abd-Elmageed et al., 2020). Yet, few studies investigated how the presence of

female directors affects the levelof tax avoidance (Hoseini et al.,2019;Riguen et al.,2021).

Hence, it is worthy to study what prior researchers relatively neglected and gain new

insights into the relationshipbetween board gender diversity (BGD) and tax avoidance.

Prior literature shows that gender diversity is relevant to the decision-making process of a

company. It enables a firm to achievea good governance structure (Boussaidi and Hamed,

2015;Alhejji and Garavan, 2016). In relation to corporate tax avoidance, prior empirical

studies generally find that BGD is negatively related to tax avoidance (Lanis et al.,2017;

Chen et al., 2019;Sawitri et al., 2017;Reguera-Alvarado et al.,2017;Agyemang-Mintah and

Schadewitz, 2019;Suleiman and Abubakar, 2021). BGD is seen as a key mechanism of

corporate governance that exercise effective monitoring of management decisions related

to tax avoidance (Vacca et al., 2020). According to their personality traits, female directors

are likely to accept more reasonable and less risky decisions than men, and this may

appear in firms’ tax decisions to pay more time to tax and the use of tax breaks (Hoseini

et al., 2019). They can benefit companies through decision-making and policies that can

reduce tax avoidance as they have higher ethical and moral standards, are more careful,

and tend to avoid risk in decision-making (Pertiwiand Prihandini, 2021). Nevertheless, prior

studies examining the impact of BGD on corporate tax avoidance have been limited to

investigate the direct association and have not consideredthe indirect analysis. Particularly,

they did not analyze the mediatingeffect of other structural and contextual characteristics of

the company that have significant influences on organizational decision-making, motivation

and orientation. Hence, it is interesting to study the indirect link between BGD and

corporate tax avoidance. In this perspective, the present study aims to investigate the

mediating effect of corporate social responsibility (CSR) on the relationship between BGD

and tax avoidance in French firms.

The existing literature offers many differentdefinitions for CSR (Cho et al., 2019;Harjoto and

Laksmana, 2018), but the most general definition used in prior studies is that advanced by

Carroll (1991) as a concept that integrates economic, ethical, discretionary, business and

legal expectations that society has of firms. A recent definition of CSR is provided in

ISO26000 by the International Organization for Standardization (ISO) as companies’

decision-making in accordance with transparent and ethical behavior and companies’

responsibility on the impact of their decisions and activities on society and the environment

(Lindgreen et al.,2009). In the same way, other authors (Chuang and Huang, 2018;Wang

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