臺大管理論叢 NTU Management Review VOL.29 NO.2

221 NTU Management Review Vol. 29 No. 2 Aug. 2019 The Relationship between Board Interlocks and Corporate Tax Avoidance 1. Purpose/Objective According to diffusion theory, network ties allow networked firms to learn vicariously from each other’s experiences through the diffusion of new knowledge. Prior research indicates that the effect of network ties on knowledge diffusion depends on the type of knowledge being shared (Carpenter and Westphal, 2001). Strong ties, such as those to similar network partners, play a crucial role when the knowledge being transferred is tacit and complex (Hansen, 1999). Brass, Butterfield, and Skaggs (1998) indicate that board interlocks play a vital role in the diffusion of unethical behavior. Considering that the tax-planning strategies of firms involve tacit and complex knowledge and unethical corporate behavior, following Brown and Drake (2014), this study posits that knowledge about tax-planning strategies and experience in implementing tax-planning strategies can be shared among firms via their network ties, especially through board interlocks. Therefore, the first purpose of this study is to examine whether a firm’s tax avoidance behavior is related to its directorate ties to low-tax firms (i.e., tax- avoiding firms). In addition, this study examines whether the influence of network ties on tax avoidance depends on the characteristics and context of the firm’s ties. Prior research suggests that executive interlocks may have a strong effect on the diffusion of innovations, because executive directors are more likely to have firsthand experience and information about specific tax avoidance strategies (Westphal, Seidel, and Stewart, 2001). Therefore, this study examines whether the influence of network ties on tax avoidance is stronger for ties formed by executive directors. Moreover, compared with the widely dispersed ownership structure in the United States and United Kingdom, more than half of the companies in Taiwan are family- controlled business groups that favor using pyramids and cross-holdings to increase their controlling influence (Yeh, Lee, and Woidtke, 2011). Thus, this study also investigates whether a firm having board ties to its family-controlled tax-avoiding firms has a stronger effect on the diffusion of tax avoidance. Mei-Juh Huang , Department of Accounting, Fu Jen Catholic University