Abstract

This study examines the effect of female executives on corporate tax avoidance and the market reaction to the tax avoidance. Corporate executives have incentives for tax avoidance as tax leads to cash outflows from the firm and also leads to lower after－tax income. However, most tax avoidance strategies accompany risk of later being challenged by the tax authority and having to bear tax penalty as well as the reputational loss. This paper examines the effect of gender differences on the level of tax avoidance. With the prior studies suggesting that female are more risk averse and more conservative than male, we expect firms with female executives to take less tax risk and show lower level of tax avoidance compared to firms with no female executives. Also, female executives are less likely to take risky tax strategies that accompany various non－ tax costs of agency costs, detection costs, or reputational costs. As such, we expect investors to place higher valuation on the tax avoidance conducted by firms with female executives compared to firms with no female executives. The paper uses 4,024 firm－years listed in Korean stock market from year 2014 to 2017. As the disclosure on executive gender has become mandatory since November 2013, we start the sample period from year 2014. The main findings of this study are as follows. First, we find that firms with female executives avoid less tax than firms with no female executives. Second, while tax avoidance leads to lower firm value with the existence of non－tax costs, female executives mitigate the negative effect of tax avoidance on firm value. This paper extends the prior literature on the determinants of tax avoidance by showing evidence of executive gender leading to different levels of tax avoidance. Also, this paper extends the literature on the consequences of tax avoidance by showing that the market reacts more favorably to tax avoidance conducted by firms with female executives compared to tax avoidance conducted by firms that are composed exclusively of male.

Keywords

• Female Executives
• Tax Avoidance
• Market Response

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