Board Diversity Impact to Tax Avoidance in European Countries

Master’s Thesis

Msc Business Administration Organizational & Management Control

2016-2017

Board Diversity Impact to Tax Avoidance

in European Countries

Saggaf Salim Alatas

S3147606

ABSTRACT: This study examines the effect of board diversity (gender and age) in relation to

the firm’s tax avoidance. There have been a lot of studies on board diversity and its impact on

the firm performance, but not enough have been done to investigate the effect of board diversity

on tax avoidance. This research uses three tax avoidance proxies to see the impact between the

variables and used it as a robustness test. This research examines 2958 company in various

European countries during the period of 2011-2015. We find that, higher level diversity among

board members (both in gender and age) have positive impact on the tax avoidance practice

among the firms. This result indicates that, firms can improve their level of board diversity to

achieve more financial benefits, while the government can put more attention to firms with

high level of board diversity

to ensure that the companies keep paying their tax payment

obligations in accordance with applicable regulations, and as a result the government can

continue to improve the regulations.

Keywords: corporate governance; board diversity; tax avoidance

Data Availability: Data are available from sources identified in the text.

Supervisor: Dr. S. Mukherjee

Table of Contents

1. Introduction ... 2

2. Literature Review & Hypothesis Development ... 4

2.1 Literature Review ...4

2.2 Tax Avoidance ...5

2.3 Board Diversity ...6

2.4 Board Gender Diversity ...7

2.5 Board Age Diversity ...8

3. Methodology ... 11

3.1 Data & Variable...11

3.2 Independent Variable...11 3.3 Dependent Variable ...11 3.3 Control variable ...12 3.4 Empirical Model ...13

4. Data Analysis ... 14

4.2 Multivariate Regression Result ...15

4.3 Sensitivity Analysis ...18

5. Conclusion ... 21

Reference: ... 23

Appendix ... 26

Appendix 1 Variable Definitions ...26

Appendix 2 List countries ...27

1. Introduction

In the present days, the number of female board members continues to rise. A recent study from MSCI shows that 4218 companies have 15 percent of women on the board seats, an increase in number compared with the 12.4 percent of the previous year (Catalyst, 2017). Credit Suisse in 2015 found that women held 14.7 percent of board positions in more than 3000 global companies, which is a 54 percent increase since 2010 (Catalyst, 2017). Another study from Deloitte reveals a similar result, that there has been an increasing trend in gender diversity in the board: in almost 600 companies in 49 countries, women occupy 12 percent of their board seats (Catalyst, 2017). The trend to increase the gender diversity in the boards does not merely come from the company’s initiative, but it is also initiated by many countries through their policy, encouraging gender diversity in the boardroom.

Another interesting factor on board diversity was age diversity. It is interesting because many researchers that studied age diversity in the board have delivered divergent result. Miller and Triana (2009) found that younger board members may get an early start to understand career entrepreneurs, whereas it is more possible for older board to have senior contacts in established firms. Firms can take benefits from age diversity to have greater access to suppliers and reduce their dependency on individual suppliers. From ethical point of view, Sharma (2009) found that older members in the board tend to have more ethical behaviors than the younger members do, while Lerner (1980) found that older employees are more aware of unfavorable consequences of unethical behavior. However, younger board members can become the inspiration and role models for the new employees and can attract diverse talents (Stephenson, 2004). These talents may improve organizational performance and help the company to achieve a continuous competitive advantage. We cannot rule out that many young people are very accomplished. The adaptability to rapid technological development is one of the main advantages of having younger board members, especially in the technology industry.

The lack of diversity on a board, which includes the members’ cultural formation, gender, age, and nationality, is one of the most significant problems currently faced by managers, directors and shareholders in the modern business world (Carter et al., 2003). Corporate governance is important factor because it is responsible for financial and non-financial reports of business entities, containing the biography of all the directors or board members of the firm, their salaries, former educations, nationalities, gender and age that an investor, shareholder, or curious reader will want to know. Corporate governance has become one of the debating factors of the academic and policy nowadays (Pargendler, 2016). The corporate governance mechanisms can still be improved trough corporate and regulatory intervention (Shleifer & Vishny, 1997).

2014; Ararat, et al, 2015). Furthermore, many studies found that higher level board diversity can increase the firm value (Carter et al, 2003; Campbell and Mínguez-Vera 2007; Anderson et al, 2011; Borghesi et al, 2015). A research also points out that board diversity provides a better problem solving, mutual monitoring of the board members, and provides an easier decision making and group thinking within the board (Leblanc, 2011). With a lot of positive impacts like those, it is not a surprise that this phenomenon, universally, increases every year.

There have been plenty of studies on the impact of board diversity on the firm performance and firm value, but not many researches have been conducted to investigate the effect of board diversity on tax avoidance. The reason behind our choosing of this topic is because we thought that it can help the firm to understand better about the effect of their board composition on the tax issues. Even though tax avoidance is a lawful decision, it is can be an unethical decision. Tax avoidance can become an unethical decision when companies consciously try to increase their income by reduce their tax payable obligations. Understanding the impact of board diversity in tax avoidance can help tax authorities to make regulations to reduce tax avoidance in companies. With companies avoiding taxes, the government's revenue from taxes will be reduced, whereas tax is one of the significant contributors to the welfare of a country, as a motor of the country’s development, and may reduce the country’s inequality of wealth. We choose European countries for our object of research, because universally, European countries are leaders in promoting the diversity of the board members. Some of the countries even make a regulation, quota, and target to increase the numbers. The research by Credit Suisse (2016) shows that Norway (46.7 percent), France (34 percent) and Sweden (33.6 percent) have the highest percentages of board gender diversity.

This study examines the effect of board diversity (gender and age) among board members in relation to various firms’ tax avoidance using quantitative method. We find that higher level diversity in the board (both in gender and age) have positive impact to the tax avoidance practice among the firms. With this result, firms can improve their level of board diversity to get more financial benefit, and investors can put board diversity factor to their calculation in choosing the company to invest on. Meanwhile, the government can put more attention on firms with high level of board diversity to ensure that they continue their tax payment obligations in accordance with applicable regulations, while continuing to improve the regulations. Although the firm values and the firm performance will increase and the number of unethical behavior will decrease, it does not necessarily mean that the policy to boost the diversity on the board members will also increase the state revenue from the tax sector.

2. Literature Review & Hypothesis Development

Firstly, I will explain and give some more insights into board diversity and corporate tax avoidance in order to determine the relation between the two concepts. To completely understand the effect of board diversity on the level of corporate tax avoidance, it is important to explain the reasons that underlie the possible relation between board diversity and corporate tax avoidance.

2.1 Literature Review

Corporate governance is the system by which companies are controlled and directed. This system will make alignment in mechanisms between interest of management, the board directors, controlling shareholders, minority shareholders and other stakeholders (Campbel & Vera, 2007). Since the 1970s, most policy efforts in corporate governance remain on the same formula, that the independence of corporate directors, on the one hand, and the empowerment of shareholders, on the other, to address very different problems over time (Pargendler, 2016).

The researchers have investigated the relationship between corporate governance with tax avoidance. Desai and Dharmapala (2006) found that a tax avoidance and managerial rent extraction can complete each other if tax avoidance decreases corporate transparency, so that it will increase the opportunity for managers to use the cooperation’s resources for their personal’s need. Minnick and Noga (2010) found some proof of a several measures link in the corporate governance that are associated with a variety of proxies intended to capture the firms' level of tax avoidance. Rego and Wilson (2012) found that firms at which managers have relatively large risk-taking equity incentives engage in more tax avoidance. Yet, they could not find evidance of the relationship between other governance mechanisms and tax avoidance. Lastly, Robinson et al. (2012) reported that evidence of the audit committee financial expertise is generally positively associated with tax planning, but when tax planning is considered to be risky, it will make this association negative (i.e., aggressive). In general, the relationships among corporate governance, managerial equity incentives, and tax avoidance are mixed (Amstrong, et al, 2015).

Board diversity is supported by two major perspectives, which are resource dependency and agency theories that have correlation with the advice and monitoring tasks of the board (Ararat, et al, 2015). In resource dependency theory, maximum access to critical resources will be obtained by choosing the best corporate board (Dunn, 2010). “Resource dependence” is interpreted by Pfeffer and Salancik (1978) as the organization’s necessity to create internal mechanisms in controlling or coordinating its external environments. There are three advantages the firm can get from the existence of corporate board: first, in getting legitimacy; second, in gaining advice and counsel; and third, in obtaining useful communication links to the firm's external environment.

among directors enables access to important constituency in external environment and will bring diverse perspectives in addition to non-traditional approach to resolve problems. These arguments are explained in resources dependence theory, therefore theory gives the most convincing basic arguments in a business case for board diversity (Carter, et al, 2010).

Agency theory describes the separation of ownership and the firm’s assets controlling. In agency theory, the function of a major board is to monitor cost and the allocation of resources. This theory states that the relationship of an agency commences when the principal party hires another party, in this case the agent party, to perform some services on its behalf which involves delegating some decision-making authority to the agent party (Jensen & Meckling, 1976). In this case, the principal party refers to the shareholder or investor, while the agent party is the company’s management. The domain of agency theory is the relationships that describe the basic agency structure of a principal party and an agent party who are engaged in a cooperative behavior, but have different goals and different attitudes toward risk. The agency structure can be applied in a variety of settings, ranging from macro-level issues such as regulatory policy to micro-level issues such as blame, impression management, lying, and other expressions of self- interest (Eisenhardt, 1989).

Based on the theory that was stated by Hilman and Daziel (2003), board of directors has two functions, namely, providing incentives and monitoring. Hilman and Daziel defined board capital as human capital, which contains the skill, knowledge and experience of the directors. Comparing those two theories, there is a contradiction in which board capital is associated with monitoring of the board and the provision of resources. Different board composition leads to differences in the effectiveness of the board to solve the agency’s problem which involves shareholders and the management.

According to the agency theory, external stakeholders that include women, minority ethnics, and foreigners as members will bring new solutions to complex problems (Francoeur, Labelle, & Sinclair-Desgagné, 2007). For example, women as external stakeholders will improve the communication between board members due to their better communication skills. This superior communication skills will increase the monitoring system in corporate, and therefore can resolve many problems in the company that eventually can improve the value of the company. A company whose stakeholders include members of different genders, ethnicities, and cultures will have better independency, because there will be many questions to ask that are never asked by directors who come from traditional backgrounds.

2.2 Tax Avoidance

the people in the country and for fixing the environmental damages caused by the company’s production process. It is important to highlight that tax avoidance does not mean that companies are involved in things that are not legal. There are many rules in the tax code that allow and/or encourage companies to reduce their taxes. Moreover, in its practice, there are many areas where the law is vague, especially for complex transactions, and companies may take the opportunity to be able to reduce their tax burden (Dyreng et al, 2008).

Tax avoidance has several consequences, both direct and indirect. Direct consequences from tax avoidance include a deduction for an otherwise non-deductible expense that can escalate cash flow to investor wealth. Indirect consequences that the company gets from tax avoidance include the increased deduction that can lower the marginal benefit of the interest tax shield and may change the firm’s capital structure decisions (e.g., Graham and Tucker, 2006). The firm can be identified by the tax authorities, and as a consequence the authorities can force the firm to pay additional taxes, interest, or penalties which can decrease the investor wealth and cash flow.

Many consequences may be suffered by the managers, shareholders, creditors, and the government from avoiding taxes. For example, if risk-neutral shareholders demand that managers take actions to maximize after-tax cash flows and the managers are provided with the right incentives, there will be a natural byproduct of managerial decision making which is the tax avoidance itself. If we assume right incentives are provided, the incentives work perfectly, and managers and shareholders understand all the risks and rewards of avoiding taxes, then the tax is being optimally avoided by the managers so that investors make unbiased beliefs about the extent and payoff from tax avoidance. Therefore, there should be no association emerge between tax avoidance and firm value or stock returns (Hanlon & Heitzman, 2010).

2.3 Board Diversity

Diversity generally means heterogeneity among board members. Diversity has an infinite number of dimensions ranging from nationality to age, from functional background to religious background, from relational skills to task skills and from political preference to sexual preference (Knippenberg et al. 2004). The diversity’s range can be either visible like race, ethnic, background, nationality, gender, age, etc.) or less visible like educational, functional and occupational background, industry experience and organisational membership (Kang et al. 2007).

According to Charter et al. (2007), there are five propositions of board diversity. Those are:

1. Corporate diversity

2. Diversity increases creativity and innovation.

According to this view, attitudes, cognitive function, and trust are not randomly distributed in the population. They tend to vary systematically based on demographic variables such as age, race, and gender.

3. Diversity creates a more effective solution to problems.

Although diversity might produce more conflicts in the decision-making process, the various perspectives can lead the decision maker to evaluate alternatives in exploring the consequences of the alternatives given more carefully. This argument is also supported by Erhardt et al (2003), that they found with high level of diversity, can increase effectiveness performances on the board and also can reduce oversight function on the board.

4. Diversification improves the effectiveness of the company's leadership. 5. Diversity encourages more effective global relationships.

The many advantages of board diversity within the company can affect the way the company is directed and controlled. As a result, the company can reap the advantage of increased effectiveness in the company’s corporate governance.

2.4 Board Gender Diversity

There are two functions of the board directors, according to the resource dependence theory by Hilman & Daziel (2003) and the agency theory: monitoring and providing resources. Two type of the gender have their own way to influence these board director functions in order to turn the level of corporate tax avoidance and influence the board effectiveness. Many empirical studies have investigated the business case of the effect gender diversity and have inconsistent result. Some studies found there is a positive impact of gender diversity on the various performance measures (Erhardt et al, 2003; Campbell and Mínguez-Vera 2007; Eagly & Johannesen-Schmidt, (2001)). With high level of gender diversity may be reflecting the diversity of customer and prospective workers to join the company, thereby may be increasing firm performance (erhardt et al, 2003). The studies in Spain by Campbell and Mingguez-vera (2007) found boards with gender diversity have greater positive impact on firm value compared to those with only one gender in the board. According to Eagly & Johannesen-Schmidt (2001) women also has better communication skills than men, so communications between board members is likely to improve. From these advantages that female directors offer, the corporate will increase their monitoring system that could help increase firm value. The higher tax avoidance, the more preferable the firm is to the shareholders. Their preferences should be aligned with the management, and increased monitoring and the resources provided by female directors could help to resolve the agency’s problems.

performance (Adam & Ferreira, 2009). Despite female directors offering more advantages to the board (that they get from their personal traits, experiences, and skills), as well as increased monitoring function compared to men, Adam & Ferreira found that, on average, the effect of gender diversity on firm performance is negative. Furthermore, Haslam et al (2010) found that there is no relationship between gender diversity and accounting measures of financial performance (ROA and ROE). With inconsistent results as such, the effect of gender diversity on the business case becomes more interesting to research.

Moreover, some studies reported ethical differences between men and women. Sidani et al (2009) found that Lebanese female workers, in certain conditions, are more sensitive to ethical issues than males. Simpson and Cohen (2004) found that women are more sensitive to questionable behaviors in the workplace. Morrell and Jayawardhena (2010) showed that women are more likely to purchase fair trade goods and promote them to the family and friends. Holtbrugge et al. (2014) also found the difference between men and women, where women tend to have more negative ethical attitudes for corporate wrongdoings compared to men who are more likely to justify business-related unethical behaviors (Chen et al, 2016). There are some studies in the psychology and economics literature about attitudes towards risk and risk-related behaviors among different genders. However, tax avoidance cannot be categorized as unlawful behavior, because it is possible for a company to allow tax avoidance to use in order to reduce their taxes burden without breaking any applicable laws. Hence, although females are less likely to conduct financial misconduct, this fact does not necessarily encourage the firms’ tax avoidance.

To summarize, the literature has showed that gender differences in board member can relate to decisions that may influence the result of corporate decision on tax avoidance. Since women can increase the board effectiveness, can increase firm performance, and are more ethical than men, therefore I assume that the effect of gender diversity on tax avoidance is positive. The first hypothesis can be formulated as follows:

Hypothesis 1: Higher level of gender board diversity is positively related to the level of corporate tax avoidance

2.5 Board Age Diversity

active responsibilities in corporations and society. Meanwhile, the younger group has the energy and drive to succeed and plan ahead for the future (Kang et al. 2007).

Similar to the case of gender diversity above, many previous studies about age diversity have produced inconsistent results. There could be several factors and reasons that incite the inconsistent findings in this area. Firstly, according to social identity theory (Tajfel, 1978), high level of age diversity in the board can induce psychological grouping of the older board members and younger board members which, if not, managed, will cause many conflicts and reduce firm performance. Another perspective from Mahadeo et al. (2012) showed positive relationship between age diversity and firm performance. They argued with mutual respect and understanding that the advantages offered by the two different groups can contribute to better teamwork for the board. Additionally, positive impact is also found in research by Kang et al (2007), in which it is stated that the combined advantages from older board members and younger board members can solve their problems better. Lastly, in India, research by Jhunjhunwala and Mishra (2012) found that there are no relationships between age diversity with corporate performance.

Arising out from ethical view, Sharma (2009) found that as the age increases along with work experience, the older group tends to be more ethical in their behaviors. Meanwhile, the younger employees are used to have better understanding in the new technology and take more risks than the older ones (Jhunjhunwala and Mishra, 2012). Moreover, Reis and Mitra (1998) found that individuals with more work experience are more likely to be wary of extra-organizational behavior about uncertain ethical nature, since they clearly understand that the unethical practices will only bring short term gains.

This shows that age diversity in the board can affect the option that the board takes to decide the level of tax avoidance in the company. Since older age group in the board have more experience, wisdom, and with a tendency to do more ethical behavior, I hypothesize that if a board of directors with age diversity have a higher number of older adults,, the company might have lower level of tax avoidance. On the contrary, since the younger age group in the board has less experience than the older one, they are more likely to dismiss unethical behavior, and therefore can increase the level of tax avoidance of the firm. The assimilation between older age and younger age group in the board may be able to balance the scale of each other’s quality, so they can bring positive impact to the firm performance and increase corporate tax avoidance. From the above description we can assume and formulate hypothesis as follows:

Hypothesis 2: Higher level of board age diversity is positively related to the level of corporate tax avoidance.

Notes: line from Gender Diversity to Tax Avoidance indicate the relationship drawn by hypothesis 1and the line from Age Diversity to Tax Avoidance indicate the relationship drawn by hypothesis 2.

Figure 1: Conceptual Model

Gender Diversity Age Diversity Tax Avoidance

H-1

H-2

3. Methodology

This section covers the methodology used for this thesis. The chapter consists of data and variable descriptions, including the dependent, independent and control variables. Finally, I will discuss the empirical model used in proceeding chapters. Refer to appendix 1 for a complete variable description.

3.1 Data & Variable

I have collected the data on board members in 2958 different companies from various European countries and United Kingdom, taken from data published by BoardEx and DataStream. The database that I use is from the period of 2011 to 2015. I have eliminated companies that have missing values. I choose European countries as the subject of my research because universally, European countries are the leaders in promoting the diversity among board members. Some countries even establish a regulation, set a quota, and specifically aim to increase the numbers. In this research I use winsorizing method at level 1 percent to eradicate database problems that have an outlier value.

3.2 Independent Variable

I use gender and age board diversity as the independent variable in this research. Data for gender and age was collected from data by BoardEx. To calculate the percentage level of gender diversity, I calculate total female members on the board divided by total male members on the board. This proxy calculation was similarly used by Adam and Ferreira (2009). Age diversity was calculated using the standard deviation. If the result is high, it means age differences between board members would generate higher age diversity values (Ali et al, 2013).

3.3 Dependent Variable

This research uses corporate tax avoidance for the dependent variable. To measures tax avoidance this research will follow the formula from Dyreng et al (2008) using effective rate. Advantages of using the effective rate is the simplicity of the measure compared to others tax avoidance proxy. Moreover, the calculation using effective tax rate is the measure of tax avoidance that is most common used in prior literature. In order to calculate tax avoidance Dyreng et al (2008), I use GAAPETR and CASHETR formula.

𝑮𝑨𝑨𝑷 𝑬𝑻𝑹𝒊𝒕=

𝑻𝒂𝒙 𝒆𝒙𝒑𝒆𝒏𝒔𝒆𝒊𝒕 𝑷𝒓𝒆𝒕𝒂𝒙 𝒊𝒏𝒄𝒐𝒎𝒆𝒊𝒕

𝑪𝑨𝑺𝑯 𝑬𝑻𝑹𝒊𝒕=

𝑪𝒂𝒔𝒉 𝒕𝒂𝒙 𝒑𝒂𝒊𝒅𝒊𝒕

𝑷𝒓𝒆𝒕𝒂𝒙 𝒊𝒏𝒄𝒐𝒎𝒆𝒊𝒕− 𝑺𝒑𝒆𝒄𝒊𝒂𝒍 𝒊𝒕𝒆𝒎𝒔𝒊𝒕

The CASH Effective Tax Rate is measured by the total cash tax paid divided by pre-tax income minus special items. 𝐶𝐴𝑆𝐻 𝐸𝑇𝑅𝑖𝑡 is the measure of tax avoidance of the company i, at time t. The time t is referring to the time period when the company conduct tax avoidance.

In this research, I use another proxy to test the robustness test of the main model estimated with the full sample and variable. I use proxy tax from Atwood et al (2012) by calculating pre-tax earnings multiplied by corporate tax rate in the home-country, less than the actually-paid taxes actually divided by pre-tax earnings before exceptional items.

𝑻𝒂𝒙 𝑨𝒗𝒐𝒊𝒅𝒊𝒕=

[(𝑷𝑻𝑬𝑩𝑿 × 𝝉)𝒊𝒕− (𝑪𝑻𝑷𝒊𝒕)] [(𝑷𝑻𝑬𝑩𝑿 × 𝝉)𝒊𝒕]

Where:

PTEBX: Pre-tax earnings before exceptional items : Home-country statutory corporate income tax rate CTP: Current taxes paid

3.3 Control variable

In this research, I use several variables as control variables that have been used in the preceding literature, including: the natural log of total asset (SIZE), operating cash flow (OCF), leverage (LEV), research and development (R&D), annual stock returns (RETURNS), intangible assets (INT), foreign sales (FOR), board size (BSIZE), board independent (BIND), return on assets (ROA), inventory intensity (INV), and capital intensity (CAP).

that the number of independence on the board relates to the level of corporate tax avoidance: the higher number of board independence in the board can reveal more agency problems between management and shareholders regarding the level of corporate tax avoidance. Return on assets (ROA) is included to control changes in book income. I include Inventory intensity (INV) because firms with greater inventory turnover have higher tax deductions associated with their cost of sold goods (Gupta and Newberry 1997). Companies with greater capital investments in fixed assets have greater tax planning opportunity (Gupta and Newberry 1997). Due to that, I also include capital intensity (CAP) in control variable.

3.4 Empirical Model

I start by testing the hypothesis underlying relationship among variables using a quantitative approach and ordinary least squares regression (OLS), which have been applied to identify the underlying causalities of the gender and age diversity variables on the dependent variable of tax avoidance. Hence, I examine hypothesis with the equation model below:

𝑇𝐴𝑉𝑖𝑡 = 𝛼1+ 𝛽1𝐺𝑒𝑛𝑑𝑒𝑟𝑖𝑡+ 𝛽𝑗𝐶𝑜𝑛𝑡𝑟𝑜𝑙 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒𝑖𝑡+ 𝜀𝑖𝑡

As can be seen from the model, 𝑇𝐴𝑉𝑖𝑡 indicates the tax avoidance of corresponding company i, at time t. Next, 𝐺𝑒𝑛𝑑𝑒𝑟𝑖𝑡 indicates the gender diversity of corresponding company i, at time t. Last variable is all control variables that we already discussed earlier in equation 𝐶𝑜𝑛𝑡𝑟𝑜𝑙 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒𝑖𝑡 of corresponding company i, at time t. For the second hypothesis, the difference with the first hypothesis is only in the dependent variable. 𝐴𝐺𝐸𝑖𝑡, which shows age diversity in the board, is examined with the model equation below:

4. Data Analysis

4.1 Descriptive statistic

The sample for this research was gathered from data published by BoardEx for gender and age variable and from Datastream for other variables operating in various industries. Table 1 provide descriptive statistics of all the variables.

Table 1: Descriptive statictics

Variable n mean Std. Dev. min max

50th Percentile CASHETR 5371 0.1287 0.17069 -0.5668 0.8794 0.1224 GAAPETR 5371 0.1250 0.21690 -1.0206 1.0982 0.1368 GENDER DIVERSITY 5371 0.1615 0.13140 0 0.5 0.1429 AGE DIVERSITY 5371 8.8187 2.98202 2.1213 17.1300 8.5430 SIZE 5371 14.1601 1.88198 7.8816 19.5297 14.1098 OCF 5371 0.0735 0.09757 -0.7134 0.3711 0.0737 LEV 5371 0.8571 1.62267 -5.1255 12.7912 0.5553 R&D 5371 0.0062 0.02163 0 0.1453 0 RETURNS 5371 0.0078 0.03405 -0.1070 0.1221 0.0096 INT 5371 0.2143 0.19226 0 0.8042 0.1660 FOR 5371 0.5338 0.34013 0 1 0.58 BSIZE 5371 10.0421 4.17767 3 25 9 BIND 5371 0.4075 0.29124 0 1 0.4 ROA 5371 3.8264 10.93101 -82.65 34.5800 4.67 INV 5371 109.2348 199.19490 0 1890 66 CAP 5371 2.3536 10.79082 0.2390 275.3333 1.1764

Note: All variables are winsorized at the 1st and 99th level. Descriptions and calculations of all variables are consistent with the definition in Appendix A

The sample companies in average conduct tax avoidance between 12.5 percent and 12.87 percent from regular payment of company tax burden. Of all board members from the data, the average of female board members compared to male members is 16 percent, with minimum diversity of 0 percent and maximum 50 percent. The youngest member of the board in the sample is 19 years old and the oldest is 101 years old. Also, the age diversity in the sample have mean of standard deviation of the company of 8,82.

Table 2: Correlation matrix of the variables used in tested model

4.2 Multivariate Regression Result

dependent variable, second, the Cash Effective Rate as dependent variable, and the third model I use is Tax Avoidance (TaxAvoid) as a sensitivity test to assure robustness among the results.

Tabel 3: Multivariate regression result with GAAP Effective Tax Rate

Variables GAAPETR GAAPETR GAAPETR

b/t b/t b/t GENDER 0.5242*** 0.5092*** [4.6687] [4.4863] AGE 0.0113*** 0.0102** [2.5902] [2.3364] SIZE -0.0046 -0.0014 -0.0035 [-0.4666] [-0.1440] [-0.3546] OCF 0.4503 0.4858* 0.4950* [1.5469] [1.6643] [1.7010] LEV -0.0310** -0.0377*** -0.0362*** [-2.4748] [-3.0821] [-2.9386] R&D 0.087 -0.0183 0.0813 [0.1065] [-0.0223] [0.0989] RETURNS -0.6223 -0.6626 -0.7481 [-1.0134] [-1.0708] [-1.2040] INT 0.0232 0.0373 0.0166 [0.3183] [0.5124] [0.2273] FOR 0.1572*** 0.1524*** 0.1605*** [3.5602] [3.4192] [3.5998] BSIZE -0.0042 -0.0042 -0.0046 [-1.1525] [-1.1606] [-1.2534] BIND -0.0921* -0.0349 -0.0837 [-1.6873] [-0.6531] [-1.5128] ROA 0.0068** 0.0067** 0.0064* [2.0042] [1.9638] [1.8850] INV 0.0001 0.0001 0.0001 [1.0062] [0.8340] [0.8355] CAP -0.0103* -0.0106* -0.0102* [-1.7883] [-1.8317] [-1.7690] Constant -2.0194*** -2.1197*** -2.1153*** [-15.3105] [-14.5752] [-14.5585] Observations 5076 5000 5000 Adjusted R-squ~d 0.033 0.029 0.034 df 5057 4981 4980 AIC 13424.8 13221.3 13199.8 BIC 13548.9 13345.1 13330.1 F-Stat 5.2 4.41 5.3 Overall p-value 0 0 0

Year Dummy yes yes yes

Firm Dummy yes yes yes

Country Dummy yes yes yes

fixed effect

Note: *p<0,1; ** p<0,05; *** p<0.01 using two-tail probabilities, to allow for effects that have possibly been inevitable.Descriptions and calculations of all variables are consistent with the definition in Appendix A.

when variable age diversity becomes the controlling variable. This result indicates that with beta coefficient in gender of 0.5242, the increase level of gender diversity on the board by 1 percent will increase level company tax avoidance by 0.5 percent. Correspondingly, the beta coefficient in age diversity, with the increase percent level of the age diversity in the board, will increase the company’s tax avoidance level by 0.01 percent.

Tabel 4: Multivariate regression result with CASH Effective Tax Rate

Variables CASHETR CASHETR CASHETR

b/t b/t b/t GENDER 0.5206*** 0.5066*** [3.9936] [3.8302] AGE 0.0171*** 0.0159*** [3.1415] [2.9276] SIZE 0.0524*** 0.0548*** 0.0529*** [4.5893] [4.7279] [4.5926] OCF 0.5237 0.5426 0.5392 [1.3179] [1.3521] [1.3485] LEV -0.0465*** -0.0547*** -0.0529*** [-3.5753] [-4.1024] [-3.9615] R&D -0.5344 -0.5048 -0.4144 [-0.4771] [-0.4497] [-0.3696] RETURNS -2.6829*** -2.6981*** -2.7568*** [-3.6826] [-3.6509] [-3.7131] INT 0.3702*** 0.4086*** 0.3806*** [4.5143] [5.0069] [4.6237] FOR 0.2450*** 0.2505*** 0.2564*** [4.6276] [4.6759] [4.7881] BSIZE -0.0005 0.0008 0.0004 [-0.1110] [0.1881] [0.1025] BIND -0.1719*** -0.1092* -0.1550*** [-2.9123] [-1.8570] [-2.5829] ROA -0.0019 -0.0015 -0.0015 [-0.3950] [-0.3167] [-0.3039] INV 0 0 0 [0.2866] [0.1866] [0.1840] CAP -0.0333*** -0.0340*** -0.0332*** [-3.0914] [-3.0262] [-3.0348] Constant -3.0060*** -3.1810*** -3.1800*** [-20.0202] [-18.7919] [-18.8255] Observations 4666 4594 4594 Adjusted R-squ~d 0.052 0.052 0.056 df 4647 4575 4574 AIC 13420.4 13209.1 13193.9 BIC 13542.9 13331.3 13322.6 F-Stat 8.34 7.72 8.25 Overall p-value 0 0 0

Year Dummy yes yes yes

Firm Dummy yes yes yes

Country Dummy yes yes yes

fixed effect

Table 4 shows the result of the regression using Cash Effective Tax Rate proxy to determine the tax avoidance. The result of combining gender diversity and age diversity shows a significantly positive relationship with company tax avoidance. It can be seen from the F-test that shows us a significant result at the <0.001, marked by *** in the beta coefficient same like proxy GAAP Effective tax rate. The result is still significant even when variable age diversity becomes the controlling variable. This result indicates that, with 0.5206 beta coefficient in gender, increasing level of gender diversity on the board by 1 percent will increase level company tax avoidance by 0.5206 percent. Correspondingly, when it comes to the beta coefficient in age diversity, the increase of 1 percent level of the age diversity in the board will help increasing 0.017 percent level of tax avoidance by the company.

Based on the significant relationship between the independent variables and the dependent variables, is it quite clear that these findings with two proxy calculations refer to formula from Dyreng et al (2008), which results in accepting hypothesis 1 and hypothesis 2. The fact that there is a positive relationship between gender diversity and corporate tax avoidance is consistent with our assumption that gender diversity has a positive relationship with tax avoidance, based on the assumption that gender diversity brings a positive impact on the increase of firm performance (Erhardt et al, 2003; Campbell and Mínguez-Vera 2007; Eagly & Johannesen-Schmidt, (2001)). Logically, the outcome of tax avoidance is an increased corporate revenue and firm performance.

The positive relationship between age diversity and tax avoidance strengthens the finding of the study by Kang et al (2007). They found that age diversity is a sensitive aspect when it comes to board diversity, and they encourage boards to have different perspective to solve their problems. The older board members can provide their wisdom and experience, while the younger board members can provide energy and plan for the future. Furthermore, the research of Mahadeo et al (2012 proves that mutual respect from both groups’ members can increase firm performance. When tax avoidance increases, the corporate’s income will also increase. Logically it will give positive impact to the firm’s performance.

4.3 Sensitivity Analysis

As a robustness test I use the TaxAvoid proxy as defined by Atwood et al (2012). I use this measure because it is argued that TaxAvoid can illustrate tax avoidance better when the sample in the research come from different countries. This proxy takes into account differences in statutory tax rate from different countries. Therefore, this proxy is arguably more refined to measure tax avoidance than other proxies. TaxAvoid is measured as the pre-tax earnings multiplied by corporate tax rate in the home-country minus the taxes actually paid divided by pre-tax earnings before exceptional items.

variables. The result is still significant even when variable age diversity becomes the controlling variable. This result explains that the increase level of gender diversity on the board by 1 percent will affect the increase level of the company’s tax avoidance by 0.2207 percent. Correspondingly, the beta coefficient in age diversity--with the increase 1 percent level of the age diversity in the board will increase 0.0072 percent level of tax avoidance by the company.

Tabel 5: Multivariate regression result with TaxAvoid

Variables TaxAvoid TaxAvoid TaxAvoid

b/t b/t b/t GENDER 0.2207** 0.2296** [2.1116] [2.1610] AGE 0.0072* 0.0068 [1.7262] [1.6406] SIZE -0.0049 -0.0027 -0.0034 [-0.4988] [-0.2738] [-0.3422] OCF -0.5517*** -0.5257** -0.5240** [-2.6766] [-2.4888] [-2.4830] LEV 0.0690*** 0.0679*** 0.0686*** [7.5170] [7.2609] [7.3086] R&D -0.2066 -0.1402 -0.0954 [-0.2851] [-0.1925] [-0.1313] RETURNS -0.6082 -0.59 -0.619 [-1.3565] [-1.2817] [-1.3496] INT -0.0976 -0.0866 -0.0975 [-1.5128] [-1.3352] [-1.5027] FOR -0.1986*** -0.2006*** -0.1984*** [-4.8944] [-4.9079] [-4.8479] BSIZE 0.0183*** 0.0191*** 0.0190*** [5.0972] [5.2939] [5.2544] BIND 0.0646 0.1114** 0.0892* [1.2498] [2.1940] [1.6878] ROA -0.0185*** -0.0189*** -0.0189*** [-8.4864] [-8.2807] [-8.3414] INV -0.0001 -0.0001 -0.0001 [-0.9979] [-1.2707] [-1.2358] CAP -0.0025 -0.0032* -0.0031* [-1.3780] [-1.6966] [-1.6574] Constant -1.9657*** -2.0619*** -2.0653*** [-16.8535] [-16.5397] [-16.5540] Observations 5246 5155 5155 Adjusted R-squ~d 0.104 0.1012 0.105 df 5227 5136 5135 AIC 13741.4 13529.7 13526.6 BIC 13866.1 13654.1 13657.6 F-Stat 24.12 22.85 22.82 Overall p-value 0 0 0

Year Dummy yes yes yes

Firm Dummy yes yes yes

Country Dummy yes yes yes

fixed effect

5. Conclusion

This study investigates the relationship between board diversity (gender diversity and age diversity) and the tax avoidance practiced in the companies within European region from 2011 to 2015. Nevertheless, this research focuses more on the big picture, particularly the firm performance or firm value. The findings are proven to be mixed. In this research, I extend the scope of previous gender diversity and age diversity researches by investigating several aspects in more detail, particularly those that can increase firm performance, and set my focus on the European region as the leaders in promoting the diversity of board members.

The acquired results are proven to support the initial hypothesis that gender diversity and age diversity lead to a positive relationship with tax avoidance. Even though there are differences in the result of regression in variation of proxy, the differences only appear on significant level. The proxy GAAP Effective Rate and Cash Effective Rate showed significant level one, while Tax Avoidance proxy, as a robustness test, showed significant level two in gender diversity and significant level three in age diversity in relation to corporate tax avoidance. This suggests that gender diversity and age diversity are crucial aspects that can influence corporate tax avoidance.

5.1 Implication

We can group the implication of this study into three groups that represent different perspectives. The first group belongs to the government that has the authority to make the law for the level diversity acceptable in the companies in their country. Nowadays, the trend to increase gender equality is very popular. The research for these impacts had become widely researched topic by researchers in diverse areas. With this research finding, the government must be aware of the positive effect of board diversity that can reduce their income. It does not mean that the authors of the researches do not support the idea of gender equality, but these findings should remind the government to not only focus to increase the level of gender equality, but also to keep improving their laws on tax avoidance to be more effective. They also need to make sure that no parties are harmed. As we know, the state tax income can be used to shore the country’s economy in order to improve the welfare of its society and to level the income of its people. Thus, it is suggested that the government should take these findings into consideration.

The third group belongs to the academics. Notwithstanding of the limitations, this research contributed to clarify the effects of gender diversity and age diversity in the board on corporate tax avoidance in the European region. Therefore, this research is hoped to be a first step to a valuable point to continuation to research the topic, considering that there are few researches that focus on this particular aspect.

5.2 Limitation

Reference:

Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of Financial Economics,94(2), 291-309.

Ali, M., Ng, Y. L., & Kulik, C. T. (2013). Board Age and Gender Diversity: A Test of Competing Linear and Curvilinear Predictions. Journal of Business Ethics,125(3), 497-512.

Anderson, R. C., Reeb, D. M., Upadhyay, A., & Zhao, W. (2011). The Economics of Director Heterogeneity. Financial Management,40(1), 5-38.

Ararat, M., Aksu, M. H., & Cetin, A. T. (2010). The Impact of Board Diversity on Boards' Monitoring Intensity and Firm Performance: Evidence from the Istanbul Stock Exchange. SSRN Electronic Journal.

Ararat, M., Aksu, M., & Cetin, A. T. (2015). How Board Diversity Affects Firm Performance in Emerging Markets: Evidence on Channels in Controlled Firms. Corporate Governance: An International

Review,23(2), 83-103.

Armstrong, C. S., Blouin, J. L., Jagolinzer, A. D., & Larcker, D. F. (2015). Corporate Governance, Incentives, and Tax Avoidance. Journal of Accounting and Economics,60(1), 1-17.

Atwood, T. J., Drake, M. S., Myers, J. N., & Myers, L. A. (2012). Home Country Tax System Characteristics and Corporate Tax Avoidance: International Evidence. The Accounting Review,87(6), 1831-1860.

Bankman, J. (1993). The structure of Silicon Valley start-ups. UClA l. Rev., (September) 41, 1737.

Berger, P. G. (1993). Explicit and Implicit Tax Effects of the R & D Tax Credit. Journal of Accounting

Research,31(2), 131.

Borghesi, R., Chang, K., & Mehran, J. (2015). Simultaneous board and CEO diversity: does it increase firm value? Applied Economics Letters,23(1), 23-26.

Campbell, K., & Mínguez-Vera, A. (2007). Gender Diversity in the Boardroom and Firm Financial Performance. Journal of Business Ethics,83(3), 435-451.

Carter, D. A., D'souza, F., Simkins, B. J., & Simpson, W. G. (2010). The Gender and Ethnic Diversity of US Boards and Board Committees and Firm Financial Performance. Corporate Governance: An

International Review,18(5), 396-414.

Carter, D. A., Simkins, B. J., & Simpson, W. G. (2003). Corporate Governance, Board Diversity, and Firm Value. The Financial Review,38(1), 33-53.

Carter, D. A., D'souza, F. P., Simkins, B. J., & Simpson, W. G. (2007). The Diversity of Corporate Board Committees and Firm Financial Performance. The Financial Review.

Catalyst. (2017, January 4). Quick Take: Women on Corporate Boards Globally. Retrieved May 15, 2017, from http://www.catalyst.org/knowledge/women-corporate-boards-globally

Chen, C., Tuliao, K. V., Cullen, J. B., & Chang, Y. (2016). Does gender influence managers’ ethics? A cross-cultural analysis. Business Ethics: A European Review,25(4), 345-362.

Darmadi, S. (2011). Board Diversity and Firm Performance: The Indonesian Evidence. Corporate

Desai, M. A., & Dharmapala, D. (2006). Corporate tax avoidance and high-powered incentives. Journal

of Financial Economics,79(1), 145-179.

Desai, M. A., & Hines Jr, J. R. (2002). Expectations and expatriations: Tracing the causes and

consequences of corporate inversions (No. w9057). National Bureau of Economic Research.

Dyreng, S. D., Hanlon, M., & Maydew, E. L. (2008). Long‐Run Corporate Tax Avoidance. The Accounting

Review,83(1), 61-82.

Eagly, A. H., & Johannesen-Schimdt, M. C. (2001). The Leadership Styles of Women and Men. Journal

of Social Issues,57(4), 781-797.

Eisenhardt, K. M. (1989). Agency Theory: An Assessment and Review. The Academy of Management

Review,14(1), 57.

Erhardt, N. L., Werbel, J. D., & Shrader, C. B. (2003). Board of Director Diversity and Firm Financial Performance. Corporate Governance,11(2), 102-111.

Francoeur, C., Labelle, R., & Sinclair-Desgagné, B. (2007). Gender Diversity in Corporate Governance and Top Management. Journal of Business Ethics,81(1), 83-95.

Guenther, D. A., Matsunaga, S. R., & Williams, B. M. (2017). Is Tax Avoidance Related to Firm Risk? The

Accounting Review,92(1), 115-136.

Gupta, S., & Newberry, K. (1997). Determinants of the variability in corporate effective tax rates: Evidence from longitudinal data. Journal of Accounting and Public Policy,16(1), 1-34.

Graham, J. R., & Tucker, A. L. (2006). Tax shelters and corporate debt policy. Journal of Financial

Economics,81(3), 563-594.

Hanlon, M., & Heitzman, S. (2010). A review of tax research. Journal of Accounting and Economics,50(2-3), 127-178.

Hillman, A. J., & Dalziel, T. (2003). Boards of Directors and Firm Performance: Integrating Agency and Resource Dependence Perspectives. The Academy of Management Review,28(3), 383.

Holtbrügge, D., Baron, A., & Friedmann, C. B. (2014). Personal attributes, organizational conditions, and ethical attitudes: a social cognitive approach. Business Ethics: A European Review,24(3), 264-281.

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics,3(4), 305-360.

Jhunjhunwala, S., & Mishra, R. K. (2012). Board Diversity and Corporate Performance: The Indian Evidence. IUP Journal of Corporate Governance,11(3).

Kang, H., Cheng, M., & Gray, S. J. (2007). Corporate Governance and Board Composition: diversity and independence of Australian boards. Corporate Governance: An International Review,15(2), 194-207.

Knippenberg, D. V., Dreu, C. K., & Homan, A. C. (2004). Work Group Diversity and Group Performance: An Integrative Model and Research Agenda. Journal of Applied Psychology,89(6), 1008-1022.

Lerner, M. J. (1980). The Belief in a Just World. The Belief in a Just World, 9-30.

Ethics,105(3), 375-388.

Markle, K. (2015). A Comparison of the Tax-Motivated Income Shifting of Multinationals in Territorial and Worldwide Countries. Contemporary Accounting Research,33(1), 7-43.

Miller, T., & Triana, M. D. (2009). Demographic Diversity in the Boardroom: Mediators of the Board Diversity-Firm Performance Relationship. Journal of Management Studies,46(5), 755-786.

Minnick, K., & Noga, T. (2010). Do corporate governance characteristics influence tax management? Journal of Corporate Finance,16(5), 703-718.

Morrell, K., & Jayawardhena, C. (2010). Fair trade, ethical decision making and the narrative of gender difference. Business Ethics: A European Review,19(4), 393-407.

Opstrup, N., & Villadsen, A. R. (2014). Gender Diversity in Top Management and Financial Performance. The Role of Organizational Structure. Academy of Management Proceedings,2014(1), 14056-14056. Pargendler, M. (2016). The Corporate Governance Obsession. Journal of Corporation Law,42(2),

359-402.

Pfeffer, J., & Salancik, G. R. (1978). The external control of organizations: A resource dependence perspective. New York: Harper and Row.

Rego, S. O. (2003). Tax‐avoidance activities of US multinational corporations. Contemporary Accounting

Research, 20(4), 805-833.

Rego, S. O., & Wilson, R. (2012). Equity Risk Incentives and Corporate Tax Aggressiveness. Journal of

Accounting Research,50(3), 775-810.

Reiss, M. C., & Mitra, K. (1998). The Effects of Individual Difference Factors on the Acceptability of Ethical and Unethical Workplace Behaviors. Journal of Business Ethics,17, 1581-1593.

Robinson, J. R., Xue, Y., & Zhang, M. H. (2012). Tax Planning and Financial Expertise in the Audit Committee.

Sajjad, S., & Rashid, K. (2015). The Relationship Between Board Diversity and Firm Performance: Evidence from the Banking Sector in Pakistan. IUP Journal of Corporate Governance,14(3), 25-47.

Sharma, S. (2009). Role of Age and Work Experience in Ethical Behavior. The Icfai University Press.

Shleifer, A., & Vishny, R. W. (1997). A Survey of Corporate Governance. The Journal of Finance,52(2), 737-783.

Sidani, Y., Zbib, I., Rawwas, M., & Moussawer, T. (2009). Gender, age, and ethical sensitivity: the case of Lebanese workers. Gender in Management: An International Journal,24(3), 211-227.

Simpson, R., & Cohen, C. (2004). Dangerous Work: The Gendered Nature of Bullying in the Context of Higher Education. Gender, Work and Organization,11(2), 163-186.

Stephenson, C. (2004). Leveraging diversity to maximum advantage: The business case for appointing more women to boards. Ivey Business Journal, 69, 1–5.

Appendix

Appendix 1 Variable Definitions

Variable Definitions

Variable

Definition

Source/calculation

GAAPETR

GAAP effective tax rate

Datastream: tax expense / pretax income

CASHETR

Cash effective tax rate

Datastream: cash tax paid / (pretax

income- special items)

TaxAvoid

Tax avoidance

Datastream: (pretax earnings before

exceptional item x home country

corporate income tax) - current taxes

paid / (pretax earnings before

exceptional item x home country

corporate income tax)

Gender Diversity

Variable indicating

gender diversity on the

board

BoardEx: total female members on the

board divided by total male members on

the board

Age Diversity

Variable indicating age

diversity on the board

BoardEx: calculated using the standard

deviation

SIZE

Natural log of total asset Datastream: Log(Total Asset)

OCF

Operating cash flow

Datastream: OANCF / Total Asset

LEV

Leverage

Datastream: DLTT / Total Asset

R&D

Research and

development

Datastream: XRD/SALE

RETURNS

Annual stock returns

Datastream:

INT

Intangible asset

Datastream: INTAN / Total Asset

FOR

Foreign sales

Datastream: PIFS / Total Asset

BSIZE

Board size

Datastream: total amount of the board

BIND

Board Independence

Datastream: total board independence/

total board

ROA

Return on asset

Datastream: PI / Total Asset

INV

Inventory intensity

Datastream: 365 / inventory turnover

CAP

Capital intensity

Datastream: PPENT / Total Asset

Appendix 2 List countries

Country TaxAvoid CASHETR GAAPETR GENDER AGE

Appendix 2 List Country Continued

Country TaxAvoid CASHETR GAAPETR GENDER AGE

Appendix 2 List Country Continued

Country TaxAvoid CASHETR GAAPETR GENDER AGE

Total 5371 5371 5371 5371 5371 Mean 0.1376634 0.1287005 0.1250472 0.1615025 8.818654 p50 0.1256118 0.1223648 0.1367856 0.1428571 8.542959 SD 0.2243166 0.1706852 0.2168954 0.1313983 2.982016 Max 1.230489 0.8794429 1.098216 0.5 17.12997 Min 0.9278253 -0.5668313 -1.020583 0 2.12132

Appendix 3 Company Sector

Company Sector TaxAvoid CASHETR GAAPETR GENDER AGE

Aerospace & Defense

N 42 42 42 42 42

Mean 0.1894725 0.0999798 0.1149656 0.1821076 9.634263

SD 0.2076599 0.1433977 0.2052646 0.1179531 2.25722

Automobile & Parts

N 142 142 142 142 142 Mean 0.1752422 0.1134977 0.1158747 0.1476352 9.037697 SD 0.0914686 0.0734179 0.0907877 0.105182 3.081447 Banks N 9 9 9 9 9 Mean 0.0522031 0.3233572 0.2617969 0.1846764 11.39018 SD 0.1821867 0.2926937 0.1821867 0.0893573 0.8246745 Beverages N 95 95 95 95 95 Mean 0.1369866 0.1249687 0.1355903 0.1747276 9.074985 SD 0.1470412 0.1656672 0.1547953 0.1247631 3.447979 Business Services N 119 119 119 119 119 Mean 0.1163275 0.1359604 0.1293691 0.1782067 8.895275 SD 0.1831771 0.1562882 0.1698312 0.1473291 3.419433 Chemicals N 197 197 197 197 197 Mean 0.1368635 0.1233741 0.1249847 0.1616811 7.841725 SD 0.1752259 0.1422073 0.1657094 0.1184337 2.269645

Appendix 3 Company Sector Continued

Company Sector TaxAvoid CASHETR GAAPETR GENDER AGE

Electronic & Electrical Equipment N 224 224 224 224 224 Mean 0.156184 0.1161507 0.1256517 0.1642704 8.967244 SD 0.1854396 0.1555736 0.1947501 0.1305946 3.313197 Engineering & Machinery N 343 343 343 343 343 Mean 0.12426 0.1467349 0.144898 0.1289707 8.286644 SD 0.1636336 0.1610199 0.1564663 0.1172562 2.8931

Food & Drug Retailers

N 82 82 82 82 82

Mean 0.1394534 0.1264375 0.1403905 0.1535502 7.827271

SD 0.1607636 0.121267 0.1606569 0.1302747 1.907787

Food Produces & Processors

N 220 220 220 220 220

Mean 0.1076938 0.1216353 0.1355971 0.1802447 8.677721

SD 0.1384435 0.1325653 0.1388398 0.1510015 3.11897

Forestry & Paper

N 62 62 62 62 62 Mean 0.1241818 0.0972292 0.1231101 0.1060982 8.469792 SD 0.2352239 0.1335831 0.234254 0.122652 2.451958 General Retailers N 139 139 139 139 139 Mean 0.1092684 0.1342171 0.1587705 0.1815652 9.232316 SD 0.1864165 0.1665052 0.1860145 0.1258275 3.437461 Health N 204 204 204 204 204 Mean 0.1331997 0.1444762 0.1275841 0.1474325 8.742517 SD 0.1981532 0.1507232 0.1808249 0.1266646 2.512971 Household Products N 99 99 99 99 99 Mean 0.0963666 0.1772163 0.1647667 0.2385125 8.62134 SD 0.2594992 0.1744569 0.2550659 0.1486429 2.956142 Information Technology Hardware N 181 181 181 181 181 Mean 0.1771826 0.0915601 0.1003565 0.1357337 8.608404 SD 0.2054464 0.1632175 0.1950435 0.1231935 3.045828 Investment Companies N 4 4 4 4 4 Mean 0.2567376 0.0611184 0.0807374 0.15 15.94687 SD 0.095039 0.147971 0.0877721 0.1224745 2.366195

Leisure & Hotels

N 163 163 163 163 163 Mean 0.1610729 0.1053296 0.1156461 0.1756156 9.89564 SD 0.2165135 0.1421354 0.2141536 0.1438403 2.946715 Media & Entertainment N 262 262 262 262 262 Mean 0.1520259 0.1093291 0.1252294 0.1954752 9.432736 SD 0.2313003 0.2027814 0.2257867 0.1197595 2.992456 Mining N 67 67 67 67 67 Mean 0.0462751 0.1174375 0.0858284 0.0864996 9.235716 SD 0.3843518 0.255747 0.3490723 0.1052994 2.544143

Oil & Gas

Appendix 3 Company Sector Continued

Company Sector _{TaxAvoid CASHETR GAAPETR GENDER AGE}

Private Equity N 27 27 27 27 27 Mean 0.2279381 0.1360038 0.0324174 0.1850157 8.599407 SD 0.4245832 0.2858338 0.4224692 0.0883182 2.346605 Publishing N 12 12 12 12 12 Mean 0.1288576 0.0422485 0.1655674 0.1906954 11.16908 SD 0.0806671 0.1489913 0.1033913 0.118065 3.122337 Real Estate N 84 84 84 84 84 Mean 0.1331122 0.0587676 0.0842688 0.1344946 8.382974 SD 0.2914352 0.1948441 0.2829059 0.1436697 2.761395 Renewable Energy N 124 124 124 124 124 Mean 0.1542872 0.0144722 0.1052068 0.1021289 8.003004 SD 0.3774768 0.2396513 0.3556807 0.108531 2.986924

Software & Computer Services

N 286 286 286 286 286

Mean 0.1131166 0.169914 0.1743854 0.1612266 8.655273

SD 0.175168 0.1834107 0.1688478 0.1363688 2.996086

Specialty & Other Finance

N 54 54 54 54 54

Mean 0.1111821 0.1610406 0.1537309 0.1732776 11.47181

SD 0.2009537 0.1700836 0.2061763 0.1340186 3.49476

Steel & Other Metals