Board interpersonal diversity linked to lower tax avoidance

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New research analyzing two decades of company data shows that board interpersonal diversity mitigates aggressive tax avoidance. The study concludes that diversity brings new perspectives and strengthens oversight, underscoring the importance of composing boards with members from diverse genetic backgrounds.

Dr. Eric Boahen, of the University of East London, and his co-authors, examined thousands of UK-listed firms between 1999 and 2019 using a deeper measure of diversity to capture differences in background, thinking styles and interpersonal behavior among board members.

They then compared this diversity measure with how much tax companies avoided. Across multiple statistical models and checks, the result was consistent: firms with more diverse boards tended to avoid less tax.

Their paper, published in the International Journal of Finance & Economics, concludes the reason may be that board interpersonal diversity brings a wider range of perspectives, meaning decisions are less likely to rely on shared assumptions.

This leads to more questioning, more debate and closer scrutiny of management decisions, including tax strategies. As a result, aggressive or questionable tax practices are more likely to be challenged.

Board interpersonal diversity may include the different ways people solve problems, how they communicate, their risk tolerance and their life experiences.

The study, which was co-written with academics from Birkbeck Business School and the University of Greenwich, also finds that while companies may still use accounting techniques to manage profits, board interpersonal diversity may act as a brake on excessive tax avoidance overall.

"This matters because tax decisions often involve judgment and risk," said Dr. Boahen, of the Royal Docks School of Business and Law. "While we do not claim a direct causal link, our findings show that when boards are made up of people with different perspectives and ways of thinking, they are better at challenging management and improving oversight. That leads to more responsible tax behavior."

The findings have implications for policymakers and businesses. They suggest that board composition is not just a matter of representation, but a practical tool for improving governance.

Publication details

Eric O. Boahen et al, Mitigating Tax Avoidance: The Role of Board Interpersonal Diversity in the United Kingdom, International Journal of Finance & Economics (2026). DOI: 10.1002/ijfe.70213

Journal information: Journal of Finance

Provided by University of East London