Board independence and corporate tax avoidance: non-linear evidence from Asia-Pacific firms

Purpose This study aims to investigate the non-linear association between board independence and corporate tax avoidance in Asia-Pacific firms and examine how statutory tax rates moderate this relationship. Design/methodology/approach The analysis uses 6,540 firm-year observations from 14 Asia-Pacific countries during 2011–2020. The authors estimate panel fixed-effects regressions using two tax avoidance proxies: residual book–tax differences and long-run GAAP effective tax rates. The authors further use a two-stage least squares (2SLS) instrumental variable. Findings The results reveal an inverted U-shaped relationship, with the turning point occurring when independent directors constitute approximately 46 % of the board membership. At lower levels, board independence is associated with higher tax avoidance, consistent with boards encouraging efficient tax planning and reducing managerial slack. Beyond this threshold, further increases in board independence are associated with lower tax avoidance, reflecting stronger oversight that constrains excessive tax-related risk-taking. This non-linear association varies systematically across fiscal and institutional environments and is more pronounced in high-tax and institutionally weaker settings. Research limitations/implications The findings focus on Asia-Pacific economies and a specific internal governance mechanism. Future research may extend this analysis to other regions and different regulatory environments. Practical implications Board independence does not operate solely as a constraint on managerial behaviour. Effective boards appear to calibrate tax avoidance by encouraging value enhancing tax planning while restraining excessively risky strategies. Policymakers and regulators should therefore focus on the substance of board oversight rather than relying exclusively on formal independence requirements, particularly in high-tax and weaker institutional environments. Originality/value This study provides new evidence that board independence plays a dual governance role in corporate tax avoidance. By formally modelling a non-linear relationship, it reconciles mixed findings in prior research and highlights why governance effects in taxation may differ from those in financial reporting settings.