CEO‐Board Social Ties and Corporate Tax Avoidance

ABSTRACT This study examines CEO‐board social ties that engage in corporate tax avoidance. We find that an increasing proportion of CEO‐board social ties in a firm is associated with higher levels of tax avoidance. Our results withstand several endogeneity tests, including propensity score matching, entropy balancing and a difference‐in‐differences analysis using an exogenous shock to CEO‐board social ties. Further analysis shows that CEO‐board social ties affect tax avoidance via weakened board monitoring. Our cross‐sectional tests demonstrate that the positive association between CEO‐board social ties and corporate tax avoidance is enhanced when a firm engages a tax‐expert auditor and is mitigated when the CEO has higher inside debt holdings. Finally, our main results are robust to alternative corporate tax avoidance proxies. Broadly, our findings offer new evidence on how CEOs use their social networks to affect their firms' tax avoidance strategies.