Gender diversity in corporate boardroom and tax avoidance the evidence in hose listed firms

UNIVERSITY OF ECONOMICS
HO CHI MINH CITY

ERASMUS UNVERSITY ROTTERDAM
INSTITUTE OF SOCIAL STUDIES

VIETNAM

THE NETHERLANDS

VIETNAM – THE NETHERLANDS
PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

GENDER DIVERSITY IN CORPORATE BOARDROOM
AND TAX AVOIDANCE
THE EVIDENCE IN HOSE LISTED FIRMS

BY

DAO THI HAN
MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, December 2016
i


UNIVERSITY OF ECONOMICS
HO CHI MINH CITY

ERASMUS UNVERSITY ROTTERDAM
INSTITUTE OF SOCIAL STUDIES

VIETNAM

THE NETHERLANDS

VIETNAM – THE NETHERLANDS
PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

GENDER DIVERSITY IN CORPORATE BOARDROOM
AND TAX AVOIDANCE
THE EVIDENCE IN HOSE LISTED FIRMS

A thesis submitted in partial fulfilment of the requirements for the degree of
MASTER OF ARTS IN DEVELOPMENT ECONOMICS

BY

DAO THI HAN

Academic Supervisor:
Nguyen Thi Thuy Linh

HO CHI MINH CITY, December 2016
ii


ABSTRACT
Using data set of 296 publicly listed firms in Ho Chi Minh Stock Exchange from 2010 to
2015, the study analyses the engagement of female board members, also in case of being leader
of board and executive manager, on tax avoidance activities, measured by three proxies. The

fixed effect regression results indicate gender diversity in boardroom is negatively associated
with tax avoidance measured by effective tax rate but chairwomen are more engaged in tax
avoidance measured by book-tax difference. As a result, the presence of women in boardroom of
HOSE listed firms is important to shareholders who consider about firms’ transparency or profit.

iii


TABLE OF CONTENT
LIST OF ABBREVIATIONS ............................................................................................ iv
LIST OF FIGURE............................................................................................................... v
LIST OF TABLE ............................................................................................................... vi
CHAPTER ONE INTRODUCTION ........................................................................... 1
1.1. Vietnam overview ........................................................................................................ 1
1.1.1. Female labor and pay gap in Vietnam ...................................................................... 1
1.1.2. Women participation in firm management in Vietnam ............................................ 2
1.1.3. Tax avoidance in Vietnam ........................................................................................ 3
1.2. Research objective ....................................................................................................... 6
1.3. Research design ........................................................................................................... 7
CHAPTER TWO LITERATURE REVIEW .............................................................. 9
2.1. Gender diversity and corporate governance ................................................................ 9
2.1.1. Resource-dependence theory .................................................................................. 11
2.1.2. Agency theory ......................................................................................................... 11
2.1.3. Gender equality reaction in corporate boardroom .................................................. 12
2.2. Tax avoidance and corporate governance .................................................................. 13
2.2.1. Tax avoidance ......................................................................................................... 13
2.2.2. Tax avoidance and corporate governance ............................................................... 14
2.3. Gender diversity in boardroom and tax avoidance .................................................... 15
2.3.1. Women’ participation in boardroom and tax avoidance ......................................... 16
2.3.2. Chairwomen and tax avoidance .............................................................................. 17

2.3.3. Female executive in boardroom and tax avoidance ................................................ 18

i


2.3.4. Summary ................................................................................................................. 19
CHAPTER THREE METHODOLOGY.................................................................... 20
3.1. Analytical framework ................................................................................................ 20
3.2. Data and data source .................................................................................................. 20
3.3. Research model .......................................................................................................... 21
3.3.1. Baseline model ........................................................................................................ 21
3.3.2. Variable explanation ............................................................................................... 23
3.4. Research methodology ............................................................................................... 26
3.4.1. Regression models .................................................................................................. 26
3.4.2. Robust standard Errors ............................................................................................ 27
CHAPTER FOUR EMPIRICAL RESULT............................................................... 28
4.1. Descriptive statistic .................................................................................................... 28
4.1.1. Summary descriptive statistic ................................................................................. 28
4.1.2. Women board directors in HOSE listed firms ........................................................ 30
4.1.3. Tax expense in HOSE listed firms having women board directors ........................ 32
4.2. Empirical result .......................................................................................................... 33
4.2.1. GAAP effective tax rate .......................................................................................... 34
4.2.2. CASH effective tax rate .......................................................................................... 35
4.2.3. Book-tax differences ............................................................................................... 37
4.3. Summary results......................................................................................................... 38
CHAPTER FIVE CONCLUSION.............................................................................. 40
4.1. Conclusions ................................................................................................................ 40
4.2. Implications................................................................................................................ 41
4.3. Limitations ................................................................................................................. 41
ii

REFERRENCE ................................................................................................................. 43
APPENDIX A

SELECTED FIRMS LISTED IN HOSE ............................................. 48

APPENDIX B

CORRELATION MATRIX ................................................................ 50

APPENDIX C

MULTICOLLINEARITY TEST ......................................................... 52

APPENDIX D

PANEL DATA REGRESSION RESULTS – FEM ............................ 54

APPENDIX E

PANEL DATA REGRESSION RESULTS – REM ............................ 59

APPENDIX F

HETEROSKEDASTICITY AND AUTOCORRELATION TEST ..... 64

APPENDIX G

REGRESSION WITH ADJUSTED STANDARD ERRORS............. 66

iii


LIST OF ABBREVIATIONS

BTD: book-tax different
CEO(s): Chief of Executive officer(s)
CFO(s): Chief of Finance officer(s)
CIT: Corporate Income Tax
ETR: effective tax rate
EU: European Union
FDI: Foreign directed investment
FEM: Fixed effect model
GAAP: Generally Accepted Accounting Principle
GSO: General Statistics Office
HNX: Hanoi Stock Exchange
HOSE: Ho Chi Minh Stock Exchange
ILO: International Labor Organization
OECD: Organization for Economic Co-operation and Development
REM: Random effect model
ROA: Return on asset
ROE: Return on equity
ROI: Return on investment
SG&A: Selling, general and administration
VAT: Value-added tax
VCCI: Vietnam Chamber of Commerce and Industry
VWEC: Vietnam Women Entrepreneurs Council
iv

LIST OF FIGURE
FIGURE 1.1 LABOR FORCE PARTICIPATION RATES (%) ..................................................................... 1
FIGURE 1.2: NATIONWIDE FEMALE EMPLOYED POPULATION ............................................................ 2
FIGURE 2.1: THE SCOPE OF CORPORATE GOVERNANCE................................................................... 10
FIGURE 3.1: ANALYTICAL FRAMEWORK......................................................................................... 20
FIGURE 4.1: GRAPH HISTOGRAM OF TAX AVOIDANCE MEASURES................................................... 28
FIGURE 4.2: GRAPH HISTOGRAM OF CORPORATE BOARD SIZE AND WOMEN MEMBERS ................... 30
FIGURE 4.3: HOSE LISTED FIRMS HAVING WOMEN PARTICIPATING BOARDROOM .......................... 31
FIGURE 4.4: NUMBER OF EXECUTIVE AND NON-EXECUTIVE FEMALE BOARD DIRECTOR ................. 32
FIGURE 4.5: CURRENT TAX EXPENSE IN HOSE LISTED FIRMS (BILLION VND) ............................... 32
FIGURE 4.6: CASH TAX PAID IN FIRMS IN HOSE LISTED FIRMS (BILLION VND) ............................. 33

v


LIST OF TABLE

TABLE 1.1: CORPORATE INCOME TAX SINCE 2013 ........................................................................... 4
TABLE 2.1: SUMMARY HYPOTHESES AND RESEARCH QUESTIONS ................................................... 19
TABLE 3.1: VARIABLE CONSTRUCTION .......................................................................................... 21
TABLE 3.2: EXPLANATORY VARIABLES .......................................................................................... 22
TABLE 4.1: SUMMARY STATISTICS OF VARIABLES ......................................................................... 29
TABLE 4.2: RESULTS OF FEM WITH TAX AVOIDANCE MEASURED BY GAAPETR ............................. 34
TABLE 4.3: RESULTS OF FEM WITH TAX AVOIDANCE MEASURED BY CASHETR ............................. 36
TABLE 4.4: RESULTS OF FEM WITH TAX AVOIDANCE MEASURED BY BTD ..................................... 37
TABLE 4.5: SUMMARY HYPOTHESIS TEST RESULTS ........................................................................ 39

vi

CHAPTER ONE
INTRODUCTION
1.1. Vietnam overview
1.1.1. Female labor and pay gap in Vietnam
According to Worldbank data, Vietnam keeps a very high female labor participation rate
as high as male’s, not lower than 72 percent since 2000, shown in Figure 1.1 (while male rate is
around 82 percent)1. General Statistics Office (GSO) of Vietnam also reports more than 40
percent of the nationwide labor force are women (see Figure 1.2). However, the International
Labor Organization (ILO) identifies that gender pay gap in Vietnam has been widened.
Vietnamese women earn less than men thirteen percent in 2011 and twenty to thirty percent in
2012 while global average gender pay gap is around 17 percent. The latest Labor Force Survey
Report (2012) shows that women earn less than male counterparts in all economic sectors, even
the favor-female industries like healthcare, social works. Hence, the remuneration seems to
reflect gender of worker instead of content of work. It is clear that the principle of “equal pay for
work of equal value” stipulated in the Labor Code need to be implemented.
Figure 1.1 Labor force participation rates (%)
male rate

female rate

100
90
80
70
60
50
40
30
20

10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

(Source: worldbank.org)

1

(female/male) labor force participation rate = % of (female/male) population ages 15+ having a job

1


Figure 1.2: Nationwide female employed population
60.000

100%

50.000

80%

40.000
30.000

49% 47% 49% 49% 48% 48% 48% 48% 49% 49%

60%
40%

20.000
20%

10.000
-

0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Total

Woman

%

(Source: gso.vn)
As one of the key talent pool in total Vietnam labor, the roles and contributions of
women to the economic development should be admitted soon rather than the traditional
expectation in household responsibility. Madam Nguyen Thi Tuyet Minh, Chairwoman of
Vietnam Women Entrepreneurs Council (VWEC) emphasizes that women are the important
factor possibly solving international affairs (Women with Business and Gender Equality, 2016).
This emerging subject of “Creative women, creative economies,” is discussed in the Global
Summit of Women 2015 organized in Sao Paulo, Brazil. In the conference, many specialists
agreed that Vietnamese women with the wisdom, insight and determination in any business or
social circumstance are deserved to be promoted to leadership.
1.1.2. Women participation in firm management in Vietnam
Some representatives of richest and most powerful women in stock market like Ms.
Truong Thi Le Khanh (chairwoman cum CEO of Vinh Hoan Company), Ms. Pham Thu Huong,
Ms. Pham Thuy Hang (vice presidents of Vingroup), and Ms. Mai Kieu Lien (chairwoman cum
CEO of Vinamilk)… are holding important positions in large corporates. However, the more
opportunities women have in career, the more obstacles and pressures women have. Participating

in the political or economic activities creates pressure of making decision, influencing male
employees, satisfying clients…to women. Besides, they have to carry out the housewife
responsibility with children, husband and her family. Moreover, the expectation to be
2


outstanding in appearance, knowledge or behavior is the other pressure to female leaders.
Certainly, the long-time process to shorten the gender gap needs efforts of not only trade unions,
social organization but also, and most important, female workers themselves to access education,
improve skills and overcome glass ceiling2.
Internationally, the ILO has worked closely with internal organizations, like Vietnam
Chamber of Commerce and Industry (VCCI), to create jobs and reduce poverty. Under the
valuable support of the ILO, women’s economic empowerment is promoted and starts to be
guided legally. Some legal tools favor gender equity like Gender Equity Law (2007), the
Directive No. 10/2007/CT-TTg of Prime Minister, Decree No. 90/2001/ND-CP (2001) and
Resolution 11/NQ/TW on “Policy for women in the period of industrialization and
Modernization” (2007). Moreover, Vietnam takes part in global/regional conferences about
women to discuss and learn to encourage the engagement and contribution of women in social
and economic life. Recently, in the Global Summit of Woman in 2016, an international forum for
women founded in 1990, one of the four breakout sessions of leadership development is
“Women on Boards Roundtable: How female board members can drive value and results”.
Generally, it is essential to perceive that women prefer to be appointed as leader in business or
politics on merit, not in condition of elimination discrimination. Correspondingly, Shoko
Ishikawa, Country Representative for United Nations Women in Vietnam, has added on
Worldbank news: "We need to highlight role models and positive images of female leaders, and
highlight women’s roles in non-traditional jobs such as business leaders, scientists, architects so
that we can change perceptions on tasks that women can take on."
1.1.3. Tax avoidance in Vietnam
In recent years, Vietnam General Department of taxation has improved in policies and
procedures that impact positively on the business community. From 2014 to 2016, the tax

declaration and administrative procedures have been simplified gradually to reduce compliance
cost and time for business entities. The tax sector has enacted many tax regulations of
Government and the Ministry of Finance like Circular No. 92, 96, 110 and 127/2015/TT-BTC
and Resolution 19 and 35 on tax administrative simplification and preparing for electronic tax

2

Glass ceiling is invisible but real barrier prevent qualified and deserving employees developed, normally
causes by age, ethnicity, political or religious affiliation, and/or sex

3


declaration. Moreover, increasing number of enterprises and enterprises’ competitiveness with
reasonable tax rates also helps to acquire capital and ensuring State budget from domestic
income sources.
Accordingly, the General Department of Taxation will implement some measures to
expand the tax base. A single rate of VAT is one proposal of tax reform. Besides, revenue from
land and properties on land has been considered as an important source of State budget in future.
Especially, in order to ensure the equality for both domestic and foreign business entities, the tax
service has proposed a lower corporate income tax and improving legal framework for transfer
prices enforcement.
Table 1.1: Corporate income tax since 2013
Effective time

Before 01 July, 2013

After 01 July, 2013

From 01 January, 2014

From 01 January, 2016

Entities

CIT

Documents

All firms excluding below list

25%

Exploration and exploitation oil and gas
operations in Vietnam

32%50%

Circular
123/2012/TTBTC issued on
27 July, 2012

Exploration and exploitation valuable
resources operations Vietnam (exclude oil
and gas)

50%

Mines (70% locations belongs to region
difficult economic and social conditions

40%

Firms’ revenue less than VND 20 billion

20%

Firms’ revenue from VND 20 billion

25%

New established firms since 01 July, 2013
(excluding tax-favored list)

25%

Firms’ revenue less than VND 20 billion

20%

Firms’ revenue from VND 20 billion

22%

New established firms less than 12
months (excluding tax-favored list)

22%

All firms (excluding tax-favored list)

20%

Circular
141/2013/TTBTC issued on
16 October,
2013
Circular
78/2014/TTBTC issued on
18 June, 2014
Circular
96/2015/TTBTC issued on
25 June, 2015

(Source: the author summarized from gdt.gov.vn)

4


Corporate income tax (CIT) has been adjusted several times since 2013 as shown in
Table 1.1. Although the CIT has been dropped 3 percent since 2013 to 2015, many experts agree
that total tax expenses that companies must pay are considered very high compared to
neighborhood. One of the reasons is Worldbank’s survey results show that Vietnamese business
entities have to pay 39.4 to 40 percent of profit for taxes and fees, which includes CIT, land tax,
health and social insurance for labors. The results point out a big gap in taxes and fees in
Vietnam and Indonesia (29.7 percent), Thailand (27.5 percent), Cambodia (21 percent), and
Singapore (18.4 percent). Therefore, another proposal to reduce CIT at 17% has been prepared to
send to National Assembly in 2017.
Tax and transfer pricing audits are conducted in large provinces and cities including
Hanoi, Ho Chi Minh, Binh Duong, Lam Dong, Thanh Hoa, Quang Ninh, Bac Ninh, Khanh Hoa,

An Giang, Vinh Phuc, Ba Ria-Vung Tau, Gia Lai and Ha Tinh… In 2012, 7,800 companies with
related party transactions were targeted in transfer pricing inspection, especially foreign-invested
companies. In 2014, after an investigation in 870 foreign firms nationwide, tax authorities found
that 720 cases engaged in tax fraud. Pay back taxes and penalties are nearly VND 400 billion
(equal to US$ 19 million) (Vu et al., 2014). Similar to previous reports, the profit shifting is
found in higher price for purchase of tangible transactions (materials, machinery and equipment)
and lower selling price of finish goods. Moreover, those foreign firms have been paying very
high cost for technology transfer and trademark fees. Especially services and consumer product
sectors pay overvalue of royalties for parent companies. However, monitoring every purchase
and sales evidence of those multinational corporations is very difficult even though tax
regulations have allowed valid invoice and inter-company agreements as supporting for
corporate income tax and valued added tax.
Since 2011, the conference transfer pricing enforcement efforts has agreed to build a
specialized transfer pricing team to administer the transfer pricing compliance of taxpayers in Ho
Chi Minh City. Later, large provinces are also expected establish a specialized transfer pricing
team. Moreover, period from 2012-2013, the EU Commission combined with the OECD and
World Bank have implemented the EU project which aims to assist Vietnam to focus on transfer
pricing by improving the tax regulations and tax. The project equipped tax officer knowledge,
tools and practical skills to implement and enforce Vietnamese transfer pricing regulations
5


efficiently. On 21 May 2012, Vietnam's Ministry of Finance issued Decision No. 1250/QD-BTC
approving the National Action Plan for 2012-2015 related to tax avoidance, generally and
transfer price, specially.
1.2. Research objective
Many regulatory framework, technology, administrative procedure and tax policy… have
been improved to facilitate developing healthy business environment. The stock market as the
channel for raising medium and long term capital has received a lot of changes for improvement.
By the end of 2015, market capitalization achieved over 1298.53 trillion, with 1146.9 trillion in

Ho Chi Minh Stock market (HOSE) and more than 151.6 trillion in Hanoi Stock Market (HNX)3.
In particular, VN-index in HOSE increased 4.13 percent with 28 billion shares among 39.7
billion shares in the market. From 2016 to 2020, about 500 state firms are completing the
equalization which offer more options for investors and increase the market capital. Thus, it is a
must to have a transparency, professional and equality for investors and organizations.
Furthermore, the tax sector recently examined tax evasion in FDI enterprises as the illegal
tax avoidance activities. However, this fraud action is applying the formula of general tax
planning which increases reported expenditures to reduce reported profit and tax obligation.
Actually, there are some lawful forms of tax planning applied in most of the firms at any tax rate
in every country. The taxpayers can conduct tax advantages by any means of legislation offers or
loopholes, called broad tax avoidance (Hanlon and Heitzman, 2010). Particularly, this strategy
has been considered as one of the issues of corporate governance (Tricker, 2015).
The recent economic and social condition has been changed affecting women’s
participation in labor market and opportunities to have leaderships. More and more involvement
in workplace, women want to achieve not only financial independence but also decision-making
influences. Being engaged in the tussle by men, women are forced to show how they can drive
value and result for a firm as a female board member. Therefore, the objective of this study is to
examine the contribution of women board directors in differential features of corporate
governance and social responsibility of HOSE listed firms with special emphasis on tax
avoidance behavior.

3

/>
6


To solve the above research objectives, the study will answer three questions in
correspondence with three considered matters:
1. Is presence of women in boardroom associated with tax avoidance?

2. Is there any relationship between chairwoman and tax avoidance?
3. Is female executive in boardroom related to tax avoidance?
1.3. Research design
This study considers the effect of gender diversity on boardroom on corporate tax
avoidance. Based on the panel data of 296 firms listed in HOSE from 2010 to 2015, the study
employs fixed effects regression to test the prediction that woman board director has significant
association with tax avoidance.
Corporate board of directors is responsive to the stakeholders’ rights and wishes,
normally related to investors’ in listed firms. Besides the descriptive benchmarking or
questionnaire survey studies examine the influence of women presentation on board, various
studies execute quantitative analysis evaluating the impact of having female directors on
financial or social performance. Erhard et al. (2003) shows that the share of female and
minorities board members is positively correlated with firm financial performance, measured as
return on asset (ROA) and return on investment (ROI). Another study from Carter et al. (2003)
has found positive relationship between the presence of women on board in companies firm size,
board size and Tobin’s Q. In addition, Lückerath-Rovers (2013) suggests that the presence of
women on board is an attribute of companies having better performance with higher return on
equity (ROE).
The psychology and economics literatures have studied gender differences in attitudes
toward risk and in risk-related behavior. Most studies support the notion that women are more
risk averse than men in the general population. Besides, men are more overconfident than
women, affecting the perception of the probability distribution underlying a risk (Huang and
Kisgen, 2013). Francis et al. (2014) figure female CFOs and their male counterparts engage
similarly in tax avoidance. Especially, the authors emphasize that the female CFOs pursue not all
tax saving opportunities to avoid extra risks. Moreover, although the reason behind gender effect
on tax aggressiveness is risk-aversion of female, female fund managers do not differ significantly
with male in performance and investment behavior (Atkinson et al., 2003) or being the
7

professional analysts with bolder and more accurate forecasts (Kumar, 2010). Hence, the
presence of women in boardroom is supposed to negative associated with tax avoidance.
By using three different proxies of tax avoidance in the regression, the research implies
three different findings. Generally, women’s presence in boardroom is negative associated with
tax avoidance activities by paying more cash tax expenses. However, they just focus on reported
value to have high rate of book effective tax rate when holding executive positions. On the other
hand, since holding leadership role of the firm, chairwomen positively associated with tax
avoidance to enhance shareholders’ benefit.
The paper is arranged in five chapters. The first one gives an overview of research
problem, research objectives and research question. This chapter also summarize the brief data,
literature used in the research. The second chapter provides some theoretical literature and prior
emprical studies related to presence of female board member and tax avoidance. The next one
describes data measurement and regression models in metheodology. The research results are
presented in chapter four. Finally, analytical result and implication are outlined in chapter five.

8


CHAPTER TWO
LITERATURE REVIEW
2.1. Gender diversity and corporate governance
Corporate governance is defined differently under alternative viewpoints of the subjects.
Most often viewed as both operational and relationship perspectives, corporate governance is
determined as the procedures and processes of directing and controlling the activity and
performance of an organization (Tricker, 2015). This issue particularly deals with rights and
responsibilities of the board of directors and primary stakeholders. Although, the board of
directors is typically central to corporate governance, various stakeholders including
shareholders and advisors, the important proxies, and other participants like management team,
employees, customers, suppliers, etc. involve in corporate governance as wider relationship
perspective (Tricker, 2015).

Board of directors elected by shareholders or appointed by other board members is the
primary stakeholders influencing corporate governance. The boards are often comprised of
insiders, founders and executives, and outsiders. All important decisions such as firm
management team appointments, compensations, dividend policy or even financial optimization
in some instances are board’s obligations. Commonly, the roles of corporate board are examined
under five theoretical perspectives: legalistic, resource-dependence, class hegemony, agency
theory and resource base. In spite of various assumptions of board roles, the natures of them are
concluded into two main categories: service and control (Mintzberg, 1983). Besides, Huse and
Rindova (2001) emphasize that various stakeholders imply different board roles, service and/or
control because of different functional relationship with corporates.
The Figure 2.1 summarizes all parties involved in various perspectives on corporate
governance. This schematic diagram is captured in the book of Trickers (2015) named Corporate
Governance: Principles, Policies and Practices. In the described framework, the corporate
governance codes pay attention to the centralized players of board of directors, shareholders and
the management. Beside other parties, corporate governance of public listed firms is also
significant to stock market and listed rules. Some commentators and researchers widen the focus
of corporate governance to interrelations of minority shareholders, institutional investors,
auditors, government and contractual stakeholders. Moreover, after the bankruptcy of some high9


profile companies such as Enron and WorldCom in the United States (U.S), or Marconi, British
Rail in the United Kingdom and some other collapse in Australia, Italy, Germany in the
beginning of twenty first century…, corporate governance has become a pressing issues
including poor structure boards. Consequently, high level of corporate governance requires
transparency in rules and controls which includes incentives alignment and board compositions
and how board operates. Thus, it is necessary to have a diversification in the corporate board for
managing and satisfying multiple stakeholder relationships.
Figure 2.1: The scope of corporate governance
Stock market for
listed companies

Finance market –
equity and debt

Market
intermediaries
Shareholders

Board of
directors
Societal
influences
and other
stakeholders

Media

Government
and other
corporate
regulators

External
auditors

Management

Contractual
stakeholders: employees,
suppliers, customers, etc

(Source: Corporate Governance: Principles, Policies, and Practices (3rd ed.) (Tricker, 2015))
In the increasingly complex and uncertain environment, board diversity with a
combination of different qualities, characteristics and expertise of members in composition of
corporate board has been advocated to increase organizational performance and decision-making
(Walt and Ingley, 2003). However, a majority of studies pay more attention to
observable/demographic diversity, especially the gender effect, than non-observable category,
such as background or knowledge of directors (Erhardt et al., 2003). Therefore, gender diversity
is one of the categories of board diversity in corporate governance. In stakeholder perspective
10


(discussed above) and resource dependence theory, gender diversity connects to good
relationship with stakeholders and corporate governance (Pfeffer and Salancik, 1989). Moreover,
women’s presence also measures the independence advocated in agency theory which creates
fair and transparent decision-making (Terjesen et al., 2009).
2.1.1. Resource-dependence theory
In resource dependence theory, good corporate governance benefits from the linkage of
corporate board between internal and external resources that company depends. This linkage
mechanism comes up with at least four benefits for firms those are: establishing useful
information, a channel for communication, a significant step to achieve commitments of support
internal resources and lastly the value in organizations legitimacy. Particularly, resource
dependence theory suggests legitimacy effect as the consequence of gender diversity on the
board because female directors highlight positive signal to other stakeholders (Pfeffer and
Salancik, 1989).
Women directors are considered as the career opportunities equality for all employees. In
addition, more women presenting in corporate boards reflects the demographic diversity seizes
firms’ reputation and social expectation (Singh, 2007). Thus, the gender diversity engages firms
in customer-oriented business and political effects. Moreover, directors not only manage and
convey timely information to stakeholders but also have ability to legitimate companies’ actions
and mobilize external support and resources for them. Thus, some stakeholders, especially

shareholders, profitability is not the only characteristic of firm they focus on, but they also need
firm demonstrate good corporate citizenship such as ethical behavior.
Diversity might also contribute to improve team performance for sharing different range
of perspectives and contributing to the discussion, exchanging ideas (Kang et al., 2007).
Structurally, gender diversity in boardroom strengthens the competitive situation inside the firm
and positive attitudes from society. Consequently, gender diversity in corporate boardroom
enhances firm performance with linkages related resources (Carter et al., 2003, Rose, 2007).
2.1.2. Agency theory
In agency theory, the boards and managers should monitor the actions as agent on behalf
of their shareholders to maximize shareholders wealth (Huse and Rindova, 2001). This primary
11


standard for evaluating corporate performance concerns two issues: the board composition and
the leadership structure impacting on organization performance (Van der Walt and Ingley, 2003).
Board composition from an agency perspective suggests that with a greater proportion of outside
directors boards will monitor self-interested actions by managers better and will thereby
minimize agency costs. In this case, diversity is the measure of independence in boardroom.
Moreover, separating or at least counterbalancing the role of chief executive and
chairman of the board to reduce the opportunity for a powerful of minorities on decision-making
processes (Walt and Ingley, 2003). Classical management theory seldom enables the board in
organization chart, i.e. not belongs to management structure. While executive officers have
authorities and responsibility distinction in line, each board director has equal responsibility,
same duty and powers (Tricker, 2015). Therefore, the executive directors with managerial roles
and responsibilities have superimposed the management over governance, yet governance role
has become more important than management in modern business (Tricker, 2015).
Briefly, the main issue concerning agency cost is the independence of directors and the
balance between executive and non-executive directors on boards. Generally, both agency theory
and the resource dependence view adequately take into account the key aspects of governance
being the rationale for diversity in the boardroom.

2.1.3. Gender equality reaction in corporate boardroom
Any diversity promotes a better understanding of the market place, increases creativity
and innovation, and effective problem solving (Carter et al., 2003) because people with different
gender, ethnicity, education or cultural background might not ask traditional questions.
Motivation of gender diversity firstly comes from the gender neutralization reaction for equal
treatment and equal career opportunities for women contributing to organization (Villiers, 2010).
So far, Norway where successfully mandated corporates achieving legislation quota of 40
percent female in boardroom by January 2008 may become the first country gains the target rate
of female presentation on board (Hoel, 2009). In 2007, Spain issued Diversity in Corporate
Governance Code which recommends a ‘balanced board’ with at least 40 percent of both sexes
(Lückerath-Rovers, 2010). Although Spain has not applied penalty like Norway, Spain aims to
comply the target in 2015 (Pande and Ford, 2011). Along with Botswana, the Netherlands had
very low proportion of female directors on its boards before 2008. Only 34 over 113 Dutch listed
12


companies had female directors, equal to 5 percent of all executive and non-executive directors
(Lückerath-Rovers, 2009). Therefore, in 2008, a majority of Dutch parliament voted to update
the Corporate Governance Code including a target rate of between 25 to 30 percent of women on
executive and supervisory board by 2015 (Lückerath-Rovers, 2010). Two years later, France
applied the legislative gender quota for corporate boardroom with a tight schedule to achieve 20
percent (2013) then 40 percent (2015) female (Pande and Ford, 2011). In spite of many
disadvantages, appreciation of balanced gender leadership is believed as the solution to
overcome culture of inequality in business environment.
Increasingly, female talent on board level has become an international trend in Belgium,
Canada, Italy, the United Kingdom, Australia, Middle East countries and also Asian developing
countries (Terjensen et al., 2009; Villiers, 2010; Pande and Ford, 2011). However, Kang’s study
(2007) shows a very low rate of 85 women over 820 total member directors in Australia’s top
companies; even 33 companies have no female director. Recently, Villiers (2010) notes
statistical result of a slightly change from 5.8 percent to 12.2 percent of female-held directorship

in United Kingdom within a decade. The paper, especially, supposes tokenistic recruitment of
women director continues increasing during that period, from 58 percent in 2000 to 75 percent in
20094. Unexpectedly, some Norwegian public firms even convert to private or register in the
United Kingdom instead of applying legislated gender quota. The imbalance of women’s
presence in the “conservative board” insists more evaluation on corporate governance practices
to have equality rights for women in a modern corporate board.
2.2. Tax avoidance and corporate governance
2.2.1. Tax avoidance
Corporate income tax is the important expense in profitable firms, thus, always being
considered to reduce. Together with other taxes, it is also the main revenue to government, so a
lot of policies are issued to prevent reducing taxes. However, it is ambiguous to identify whether
tax reducing is treated as permissible or illegal transaction (Hanlon and Heitzman, 2010). Under
different perspectives and examination, the term “tax avoidance” has no universally accepted

4

Tokenism = actions that are the result of pretending to give advantage to those groups in society who
are often treated unfairly, in order to give the appearance of fairness

13


definition but agreed to represent a continuum of tax planning strategy (Dyreng et al, 2008).
Following Hanlon and Heitzman (2010), tax avoidance is conceptually defined as the reduction
of explicit taxes per dolla of pre-tax earnings, which does not distinguish between tax-favored or
lobbying activities.
Tax avoidance has direct consequences as well as indirect consequences. Adjustment the
non-deductible expense to have lower taxable income directly creates higher cash flow and
investor interest. However, firms may also face with negative relation between tax avoidance and
firm value in capital market. For instant, Kim et al. (2011) posit and find significant effect of tax

avoidance on stock price crash risk. In addition, non-debt tax shields generate indirectly lower
marginal benefit and capital structure decision (Graham and Tucker, 2006; Kim et al., 2010).
Besides having relatively young literature and missing a conceptual definition for tax
avoidance, estimating tax position from financial statement information is another limitation for
researchers and investors (Liswosky, 2008; Hanlon and Heitzman, 2010). Especially, evaluating
tax planning continuum from the visible elements of financial statement may lead to some errors
(Hanlon and Heitzman, 2010). Virtually, many researchers only can infer estimated taxable
income or tax liabilities from reported current tax expense scaled by statutory tax rate (Frank,
2009; Wang 2010, Hanlon and Heitzman, 2010; Lennox et al., 2012). Moreover, firms in
different economic or bussiness model have differences between Generally Accepted Accounting
Principle (GAAP) expenses and revenue versus the recognition required by tax law (Blaylock et
al., 2010). Conventionally, capturing general tax avoidance from public data source of financial
statement is only suitable for non-conforming tax position which lowers taxable income relative
to GAAP income in any way (Hanlon and Heitzman, 2010).
2.2.2. Tax avoidance and corporate governance
Tax avoidance as an important topic of tax research has increasingly been concerned in
new empirical researches approaching determinants and consequence of it. Tax accounting
literature continues investigating the variation in tax avoidance and motivation for different tax
planning level, such as incentivizing policy (Phillips, 2003; Armstrong et al., 2012). Beyond
traditional corporate governance dimension like incentives compensation, ownnership structure,
considerable researches are interested in potential engagement like tax avoidance related to board
of director composition, trade union or social responsibility (Lietz, 2013).
14


Recently, besides increasing topics of tax avoidance determinants and consequences, the
role of directors or executives to tax reporting is developed in finance and economic tax studies.
Dyreng, et al. (2010) has found a significant association between top executives and tax
avoidance measure cash effective tax rate. Further, Rego and Wilson (2012) imply the positive
relation between tax aggressiveness and equity risk incentives for managers’ compensation.

Moreover, Lanix and Richardson (2011) document the regression result of higher presence of
independent board directors with less tax avoidance. Broadly, interaction of tax avoidance and
corporate governance is an emerging subject.
On that agency prediction base, many studies attempt to provide incremental explanation
for the cross-sectional variation in tax avoidance. Investigations frequently focus on the role of
corporate governance features such as compensation practices, executive incentives or ownership
patterns. McGuire et al. (2011) investigate dual class stock ownership causing the agency
conflict that relate to corporate tax avoidance. In addition, Hanlon et al. (2007) and Armstrong et
al. (2015) are interesting in the link between corporate governance, managerial incentive and tax
avoidance. Hanlon et al. (2007) include “Gompers-Index” as a governance-index to analyze the
role of corporate governance on tax noncompliance. The authors interpret governance quality is
not a significant factor determine corporate tax noncompliance. They also indicate tax
deficiencies of foreign-controlled groups are smaller than purely domestic groups’.
More and more researches cover corporate dimension associated with tax avoidance.
Motivated from agency theory of corporate board roles, Minnick and Noga (2010) consider four
dimensions of corporate governance including board composition to investigate the corporate
role in long-run tax management. It is noteworthy that board size and the number of independent
directors on the board are positively related to effective tax rates. The result is consistent with
finding of Lanis and Richardson (2011) examination the effect of board composition on tax
aggressiveness in Australia. The authors find that a higher proportion of none-employee directors
can reduce the probability of tax aggressive behavior. Evidently, diversity in boardroom relates
to tax avoidance activities.
2.3. Gender diversity in boardroom and tax avoidance
Gender element in board composition is rarely documented in any prior studies
examining relationship of governance and tax avoidance. Law and Mills (2015) have paid
15


attention to gender but only examine possibility of tax aggressiveness and male CEO, even this
variable has insignificant coefficient. Before them, Dyreng et al. (2010) also document no gender

difference, at executive level, in tax avoidance. Then Francis et al. (2014) figure female CFOs
and their male counterparts engage similarly in tax avoidance. Especially, the authors emphasize
that the female CFOs pursue not all tax saving opportunities to avoid extra risks. Moreover,
although the reason behind gender effect on tax aggressiveness is risk-aversion of female
(Francis et al., 2014), female fund managers do not differ significantly with male in performance
and investment behavior (Atkinson et al., 2003) or being the professional analysts with bolder
and more accurate forecasts (Kumar, 2010). While previous studies figure the impact of gender
diversity in corporate boardroom, therefore, it is necessary to have an overall evaluation the
presence women on the corporate board and tax avoidance.
2.3.1. Women’ participation in boardroom and tax avoidance
Assuming, all firms may involve in minimizing corporate tax expense if there are few
costs associated with tax avoidance. However, there are different tax positions between firms
even in same industry or across industries. There has been firms pay more tax than the others
while there are firms avoid more tax at same or lower tax rate. Hence, the question is why there
are differences behavior in tax avoidance opportunities, called the “under-sheltering puzzle”
(Desai and Dharmapala 2006; Hanlon and Heitzman 2010).
Possibly the hypothesis suggests that avoiding taxes may carry some non-trivial costs.
They may include both tax and non-tax cost like implementation cost, potential imposed
penalties, lobby for taxing authorities, and reputation damage to firms and their managers (Rego
and Wilson 2012). For more serious tax avoidance, the uncertainty involved can be extremely
high. The most direct risk to firms which involve in tax avoidance, broadly or seriously, is
challenges from tax authorities. Especially, publicly traded firms, have to face with auditors and
the securities regulators. Because reducing tax positions are normally not supported by actual
facts, they are more likely to be challenged, and it may be subject to large penalties (Lisowsky,
2009). Wilson (2009) estimates that the penalty can be as high as 40% of the original tax savings
from the tax shelter transactions in a sample of tax shelter firms in United States. Moreover,
reputation cost is another non-tax cost for tax avoidance firms. The popular press often casts a
negative light on firms with aggressive tax positions. For instance, Coca-Cola and Metro Cash
16