The relationship between board diversity and voluntary tax disclosures of large, listed European firms: Do institutional characteristics matter?

An increasing number of countries issue regulations on different aspects of board diversity, causing research attention to the antecedents and consequences of board diversity to grow. In this study, we focus on two different types of board diversity, namely gender diversity and employee board representation diversity and examine whether both types of diversity act as antecedents to voluntary tax disclosures in large listed European firms. In addition, we also examine whether the presence of a CSR committee is related to a firm’s voluntary tax disclosures. Subsequently, we study whether country-level formal and informal institutional characteristics moderate the relationships between these board characteristics and voluntary tax disclosures. To test our hypotheses, we hand-collected voluntary tax disclosures in annual and sustainability reports of 229 firms over seven years, resulting in 1,603 firm-year observations. We find that employee board representation and the existence of a CSR committee are significantly positively associated with more voluntary tax disclosures. In addition, both relationships are moderated by a country’s formal institutions captured by the level of tax enforcement, and a country’s informal institutions captured by the country’s level of tax morale. Specifically, we find that the positive relationship between employee board representation and the level of voluntary tax disclosure is stronger in societies with strict tax enforcement and societies with high tax morale. In addition, we find that the positive relationship between the presence of a CSR Committee and the level of voluntary tax disclosure is stronger in societies with weak tax enforcement and societies with high tax morale. Finally, our results suggest that board gender diversity is not related to the level of voluntary tax disclosure. Our results indicate that different types of board diversity lead to different firm outcomes and that the consequences of board governance mechanisms on firm outcome variables can only be understood considering the national context in which they are embedded.