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Tax avoidance
Tax avoidance: do board gender
diversity and sustainability
performance make a difference?
Anis Jarboui
Department of Finance and Accounting,
University of Sfax, Tunisia, and
Maali Kachouri Ben Saad and Rakia Riguen
Department of Finance and Accounting,
Faculty of Economics and Management of Sfax, University of Sfax, Tunisia

Abstract
Purpose – This study aims to investigate whether board gender diversity and sustainability performance
influence tax avoidance.
Design/methodology/approach – The study is based on a sample consisting of 300 UK firms over the
2005-2017 period. This study is motivated by structural equations and system models that specify both a
direct and an indirect link between board gender diversity and tax avoidance.
Findings – The results show that the level of tax avoidance decrease when the level of women on the board
increase. Therefore, we find that sustainability performance is generally associated with greater tax
avoidance. In combination, the results suggest that board gender diversity and sustainability performance
play a significant role in corporate tax avoidance.
Practical implications – The findings may be of interest to the academic researchers, investors and
regulators. For academic researchers, it is interested in discovering board gender diversity, sustainability
performance and tax avoidance. For investors, the results show that the existence of female directors on the
board reduces the tax avoidance. For regulators, the results advise the worldwide policy makers to give the
importance of female roles to improve the engagement firms in sustainability reporting.
Originality/value – This study extends the existing literature by examining the mediating effect of
sustainability performance on the relationship between board gender and tax avoidance in the UK context.
Keywords Tax avoidance, Sustainability performance, Board gender diversity,
Corporate social responsibility
Paper type Research paper

1. Introduction
Tax avoidance is fast becoming a key instrument in explaining the financial information
quality in firms. In this context, tax avoidance constitutes firms’ efforts to reduce their tax
payments to taxing jurisdictions through various means, some of which are perfectly legal
and others, known as tax aggressiveness, whose legality may be questionable.
Investigating tax avoidance is a continuing concern within a firm value. Recent evidence
suggests that tax avoidance is an important corporate strategy because firms with corporate
governance effectiveness are more likely to have internal control mechanisms (Slemrod,
2004; Desai and Dharmapala, 2006). Journal of Financial Crime
A number of researchers have investigated the relationship between corporate governance © Emerald Publishing Limited
1359-0790
and corporate tax avoidance (Bayar et al., 2018; Richardson et al., 2016; Lee et al., 2015; DOI 10.1108/JFC-09-2019-0122
JFC Lanis and Richardson, 2018; Wibawa and Abdillah, 2016). However, not much research is
conducted as to how female directors affect tax avoidance. This brings us to another subject
of interest, also in need of additional investigation, such as the relationship between board
gender diversity and tax avoidance.
In the literature, previous study suggests that the presence of woman on board
negatively affects corporate tax avoidance (Aliani and Zarai, 2012; Hoseini and Gerayli,
2018; Adams and Ferreira, 2009; Kastlunger et al., 2010; Lanis et al., 2017; Chen et al.,
2017; Francis et al., 2014). However, these results were based on the static relation
between board gender diversity and tax avoidance and how the level of the percentage
of female on the board affects directly corporate tax avoidance. Until recently, there has
been no reliable evidence that board gender diversity can indirectly affect corporate tax
avoidance.
So, in this field, our study explains how females on the board directors affect corporate
tax avoidance through performance sustainability. In fact, sustainability performance (SP)
is about building a society in which a proper balance is created between economic, social
and environmental aims. In addition, the impact of females directors on corporate behavior
has been widely covered (Adams, 2016; Carter et al., 2010; Finegold et al., 2007; Van der Walt
and Ingley, 2003; Van der Walt et al., 2006).
Recent literature (Hillman and Dalziel, 2003; Nguyen et al., 2015) suggests that gender,
ethnicity and affiliation affect company SP, but it also recognized that these factors do not
capture the full value that directors bring to the board. They have reported a positive
relationship between SP and board gender diversity, and by the way, decreases tax
avoidance.
This paper contests the claim that females on the board affect tax avoidance through
sustainability. The major objective of this study was to investigate the mediating effect of
SP on the relationship between board gender diversity and tax avoidance in UK firms. This
research seeks to address the following questions:

Q1. Does SP mediate the relation between board gender diversity and tax avoidance in
UK firms?
Methods data for this study were collected from the DataStream database, 300 UK
companies (non-financial) during 2005 to 2017. There are several important areas where this
study makes an original contribution to the accounting and finance literature. As the study
is exploratory in nature, no previous study is made regarding the indirect relationship
between board gender diversity and tax avoidance and how women on the board can affect
the effective tax rate through SP. This study merely presents a description of the difference
in board composition between companies with SP engagements and other companies.
Taking note of board diversity could assist the board directors to construct boards capable
of considering diverse perspectives and abilities to challenge social norms when executing
their fiduciary duties, and so influence performance in sustainability, and in this way,
improves the quality of financial information by reducing tax avoidance. The study also
provides the foundation for further empirical research to investigate the mediation role of SP
on the relationships between board gender diversity and tax avoidance.
The structure of the paper is as follows. Section 2 presents the theoretical framework.
Section 3 presents a review of the literature and the research hypotheses. Section 4 presents
the research design, which takes into account a description of the sample, a definition of the
variables and the analyses used. Section 5 presents the main empirical results. Lastly,
concluding remarks are given in Section 6.
2. Theoretical background Tax avoidance
A considerable amount of literature has shown a growing interest in the incorporation of
females in boardroom positions and their significant role in firms (Huse and Grethe Solberg,
2006; Torchia et al., 2011). In this area, before discussing prior literature regarding board
gender diversity, tax avoidance and SP, we will discuss the main theories associated with
the investigated relation. These include the agency and stakeholder theories.

2.1 Agency theory

Jensen and Meckling (1976) explain the existence of a principal–agent relationship between
shareholders and management and define the relation as “a contract under which one or
more persons (the principals) engage another person (the agent) to perform some service on
their behalf which involved delegating some decision making authority to the agent”
(p. 308). In fact, shareholders may demand more control mechanisms for monitoring
managers to reduce agency costs, such as external audits (Anderson et al., 1993), corporate
governance and corporate social responsibility (CSR) disclosure (Jo and Harjoto, 2011;
García-Meca et al., 2015).
Previous studies like Adams and Ferreira (2009), Francoeur et al. (2008) and Huse and
Grethe Solberg (2006) explain the relationship between female directors and the agency
theory. In this context, the agency theory argues that female directors may act as a
mechanism of supervision and control of a board’s activity. Female directors have acquired
high levels of education, such as master’s and other postgraduate degrees and, therefore, are
considered highly professional and experienced (Solimene et al., 2017) in making important
decisions on the boards.
Recently, the agency theory is one of the most theories used by the authors to explain the
impact of board gender diversity on information quality. This theory postulates that
female board directors bring a wider range of perspectives, which increases board
independence while also reducing agency costs, tax evasion and, as a consequence,
increasing firm value and information transparency (Hillman and Dalziel, 2003).
In the same vein, several attempts (Jimeno and Redondo, 2008; Campbell and Mínguez-
Vera, 2008) have been made to show that women on the board of directors have high
responsibility in the decision-making process, so it increases firm performance. Collectively,
these studies outline a critical role of the agency theory to explain how female directors
reduce tax avoidance through SP.

2.2 Stakeholder theory

Another theory possibly explaining the relationship between female on the board, corporate
tax avoidance and SP is the stakeholder theory. It is introduced by Hannan and Freeman
(1984) who argued that managers should take into account the interests of all company
stakeholders, not just the shareholders. These authors define stakeholders as “those persons
or groups that can affect the achievement of the company’s objectives, or that are affected by
the achievement of a firm’s objectives”.
So, the relationship between the stakeholder theory and corporate governance is evident.
In line with this, corporate boards maximize the value of stakeholders (Rose, 2004),
especially when the percentage of females is so high. However, the integration of minority
groups on boards, such as the presence of women, can indicate the commitment of firms to
stakeholders (Francoeur et al., 2008).
In this area, the authors assert that women on the board of directors is not only of interest
to shareholders, but also other stakeholders of the firm. The stakeholder theory is a theory
explaining how board gender diversity provides social performance. In this way, the
JFC incorporation of female directors on corporate boards may reduce tax avoidance and favor
the engagements of companies on SP.

3. Literature review and hypotheses development

3.1 Board gender diversity and tax avoidance
Prior literature regarding gender board diversity often examines the relation between the
number of female directors on the board and tax avoidance. The presence of women on
corporate boards has gained a lot of importance because of their effective role in monitoring
managerial performance.
Recent evidence suggests that the presence of woman on board negatively affects
corporate tax avoidance (Aliani and Zarai, 2012; Hoseini et al., 2019; Adams and
Ferreira, 2009; Kastlunger et al., 2010). Kastlunger et al. (2010) suggest that the
differences between men and women can be detected at the level of tax compliance and
the strategies of payments of tax burdens. Men are less compliant than women and
adopt a strategy while paying the tax charges. Aliani and Zarai (2012) found that CEO
duality and diversity on the board of directors significantly influence tax planning.
Hoseini et al. (2019) showed that the presence of women on corporate boards reduces
corporate tax avoidance. Moreover, additional analysis reveals that the negative
association between the presence of women on board and corporate tax avoidance is
more pronounced in larger firms. Moreover, Fallan (1999) found that via women
presence on corporate boards, the spiritual values of firms will be increased, thereby
resulting in a reduction in tax avoidance. In 2016, Richardson et al. published a paper in
which they investigated the impact of women’s presence on corporate boards on
reducing tax avoidance. The results of their study revealed that women’s presence on
corporate boards can exert a significant influence on reducing tax avoidance. In another
major study, Lanis et al. (2017) show a negative and statistically significant association
between female representation on the board and tax aggressiveness after controlling
for endogeneity. Their results are consistent across several measures of tax
aggressiveness and additional robustness checks.
In the same context, Chen et al. (2017) examine the effect of board gender diversity on tax
avoidance, which measure reputation risk. They find that board gender diversity (BGD) is
negatively associated with tax avoidance, suggesting firms with gender-diverse boards are
more cautious about potential reputation risks associated with aggressive tax strategies.
This view is supported by Francis et al. (2014) who write that female chief financial officers
(CFOs) are less tax aggressive than their male counterparts.
Overall, there seems to be some evidence to indicate that BGD negatively influences tax
avoidance:

H1. BGD is negatively related to the level of corporate tax avoidance.

3.2 Board gender diversity and sustainability performance

There is a large volume of published studies describing the role of women on the board to
improve transparency and ethics compliance of companies. So, we propose an explanation
wherein women on the influences performance, sustainability and CSR.
Traditionally, it has been argued that understanding the impact of diversity of the board
of directors as decision-making groups, and also the impact of representation of women or
gender diversity on the board of directors, is one important area as far as sustainability is
concerned (Forbes and Milliken, 1999; Rindova, 1999; Robinson and Dechant, 1997). In the
same vein, Carter et al. (2010) argue that in group settings, such as boards of directors, Tax avoidance
diversity results in a greater variety of ideas, perspectives, knowledge, creativity and
innovation and therefore becomes a competitive advantage. Galbreath (2011) argues that
there is a link between women on boards of directors and corporate sustainability; he
reported a positive link between women on boards and economic growth.
In 2009, Huse et al. suggest that women board members may contribute to board
effectiveness and may have particular contributions to CSR controls and strategic controls.
As women are more socially oriented than men, they have a tendency to broaden the
discussions, sometime due to their questioning attitude, on performance sustainability and
CSR control issues.
Similarly, Arfken et al. (2004) found that in arguing for greater gender diversity on
boards, some have suggested that women appointees would raise the confidence of
investors, who expect increasing accountability, transparency and moral duty from firms’
directors (Flynn and Adams, 2004). Bear et al. (2010) have found that a positive relationship
exists between women on boards and the ratings for CSR and firm reputation. BGD is
positively associated with greater transparency in firm governance, prioritization of long-
term strategies and acknowledgment of non-financial performance. This view is supported
by Ferrero-Ferrero et al. (2015) who write that board generational diversity was shown to
positively affect the adoption of more sustainable business practices.
In this context, Kassinis et al. (2015) investigate the relationship between gender and
environmental sustainability. They find that both “demographic” and “structural” gender
diversity are significant predictors of a firm’s environmental sustainability initiative.
Recently, Francoeur et al. (2017) find that BGD is positively related to CSR dimensions
that are related to less powerful stakeholders such as the environment, contractors and the
community. Cruz et al. (2018) show that increases in corporate social performance are
associated with the presence of women on the boards of family firms. Bravo (2018) found a
positive association between gender diversity and sustainability policies.
Yasser et al. (2017) suggest that female directors can play a strategic role in enabling
firms to ethically manage their social responsibilities, and sustainable practices have
important policy implications for regulators and stakeholders.
In fact, Al-Shaer and Zaman (2016) find that gender-diverse boards are associated with
higher quality; sustainability reports and independent female directors have a greater effect
on sustainability reporting quality than female directors. Nadeem et al. (2017) suggest that
corporate sustainability practices with the presence of female directors on board remarkably
increased. They found that the policy debate is informed by providing empirical evidence
supporting a board diversity case for corporate SP.
Overall, there seems to be some evidence to indicate that BGD is positively associated
with SP:

H2. BGD is positively related to SP.

3.3 The mediating role of sustainability performance

Previous studies have supported that BGD has a negative impact on tax avoidance (Aliani
and Zarai, 2012; Hoseini and Gerayli, 2018; Adams and Ferreira, 2009; Lanis et al., 2017;
Chen et al., 2017) and positive impact on sustainability performance (Eagly et al., 2007;
Shropshire, 2010). In this context, we explain in this hypothesis how SP mediates the
relationship between BGD and tax avoidance.
In this context, Benedikt and Katrin (2017) find a positive relationship between
management SP and tax avoidance and a negative relationship between operational SP and
JFC tax avoidance. Their study provides a negative association between corporate SP and
corporate tax avoidance. Mao and Wu (2019) suggest that CSR performance first reduces
corporate profitability and therefore results in lower corporate tax avoidance. Therefore, this
result suggests that SP has an indirect, but not a conditional, effect on the level of corporate
tax avoidance.
Recently, Para–González and Mascaraque–Ramírez (2019) argue that social and
environmental performance is negatively related with tax avoidance so that firms with a
greater socially responsible performance show a lower tax-saving practice.
So, if females in the board can influence SP practices of a firm, then SP has a negative
impact on tax avoidance (Benedikt and Katrin, 2017; Wu 2019; Para-González and
Mascaraque-Ramírez, 2019). We know that firms with a higher level of SP identify and judge
the demands of different stakeholders. The result is an increase in efficient corporate
governance mechanisms’ such as BGD, leading to adaptation and to organizational changes,
i.e. a successful change in management process and improving social process.
In view of all that has been mentioned so far, one may suppose that BGD positively
affects SP, which in turn negatively affects tax avoidance:

H3. SP mediates the relationship between BGD and tax avoidance

4. Research design
4.1 Sample data
The sample contains 300 firms in the period 2005 to 2017. We exclude firms operating in
financial and highly regulated industries because of their particular accounting practices.
The final sample consists of 3,900 firm-year observations after removing firms with
missing data. Table I summarizes the final sample, and Table II presents the distribution of
firms by industry and year.

4.2 Research methodology

In this study, we adopt the approach provided by Baron and Kenny (1986) and Kenny et al.
(1998) to test the hypothesis of mediation. In fact, we applied path analysis to analyze the
data. Path analysis was chosen because this technique can examine the variables
simultaneously and identify the direct and indirect effects.
The procedure in examining the hypothesis assuming the role of SP variable in
mediating the effects of BGD on tax avoidance consists of three steps, namely:
(1) Step 1: Show that the independent variable is correlated with the dependent
variable (Model Y = X);
(2) Step 2: Show that the independent variable is correlated with the mediator (Model
M = X); and

Sample No. of firms

Initial sample 400

Financial firms 100
Final sample 300
Table I. Duration of study 13
Sample selection Total observations 3900
Industry N (%)
Tax avoidance
Aerospace and defense 16 5.34
Business support services 13 4.34
Chemicals 15 5
Computer software and services 20 6.67
Construction and building materials 22 7.34
Distributors 16 5.34
Electronic and electrical equipment 20 6.66
Engineering and machinery 15 5
Food producers and processors 20 6.66
General retailers 24 8
Health 15 5
Leisure entertainment and hotels 19 6.33
Media and photography 26 8.66
Support services 21 7
Transport 16 5.33 Table II.
Restaurants pubs and breweries 22 7.33 Sample distribution
Total 300 100 across

Variable Symbols Definition Authors

Tax avoidance ETR Tax expense/pre-tax Hanlon and Heitzman (2010), Dyreng
income et al. (2008), Chen et al. (2010), McGuire
et al. (2014), Goh et al. (2016)
Board gender BGD The percentage of female Adams and Ferreira (2009), Campbell
diversity directors serving on a and Mínguez-Vera (2008)
company’s board
Sustainability SP The total score of the SP Székely and Knirsch (2005), Murty
performance index has been computed (2012), Husgafvel et al. (2015)
based on environmental,
social and economic items
Firm size SIZE Natural logarithm of total Lanis and Richardson (2012) , Gupta and
assets Newberry (1997)
Return on assets ROA Pretax income/total assets Mafrolla and D’Amico (2016)
Leverage LEV Total debt/total equity Lanis and Richardson (2012), Stickney Table III.
and McGee (1982) Variables measures

(3) Step 3: Show that the mediator affects the dependent variable (Model Y = MX)[1].

Estimating the indirect effects of BGD on tax avoidance simultaneously based on the
following path: BGD ! SP ! tax avoidance.
The conclusions about mediating variable are:
 if the effect of BGD on tax avoidance remains significant and unchanged when the
SP variable is inputted as an additional predictor variable, the function of SP
variable as mediating variable is rejected;
 if the effect of BGD on tax avoidance decreases yet remains significant after the SP
variable is inputted as an additional predictor variable, the function of SP variable
as partial mediator is accepted; and
JFC  if the effect of BGD on tax avoidance decreases at some point insignificant
statistically when the SP variable is inputted as an additional predictor variable, the
function of the variable as full mediator is accepted.

Econometrically, we estimate Models 1-3 testing the direct and indirect relationship between
BGD and tax avoidance:
ETRit ¼ b 0 þ b 1 BGDit þ b 2 LEVit þ b 3 SIZEit þ b 4 ROAit þ « it (model 1)

SPit ¼ b 0 þ b 1 BGDit þ b 2 LEVit þ b 3 SIZEit þ b 4 ROAit þ « it (model 2)

ETRit ¼ b 0 þ b 1 BGDit þ b 2 SPit þ « it (model 3)

4.3 Variables measures

4.3.1 Tax avoidance. The dependent variable in this analysis is the extent of corporate tax
avoidance. Tax avoidance is measured by the effective tax rate (ETR). Thus, ETR helps to
estimate the effectiveness in companies’ tax planning activities (Mills et al., 1998; Phillips,
2003). Desai (2003) defines cash ETR as the proportion of cash taxes paid to the accounting
income before tax. Dyreng et al. (2008) explained that the cash amount of tax paid help to
minimize the likely effects of items such as valuation allowance and tax cushions. Lanis and
Richardson (2012) argue that ETR measures the ability of a company to reduce its tax
payments relative to its pre-tax income.
In this study, we follow Watson (2015) who indicates that cash ETRs are widely accepted
in the accounting literature to proxy for tax avoidance, in part because they capture both
permanent and temporary tax avoidance strategies. ETR is defined as the ratio of total tax
expense to pre-tax income for a given firm:

Tax Expenseit
ETRit ¼
Pretax Incomeit

4.3.2 Board gender diversity. BGD: BGD was measured by calculating the percentage of
female directors serving on a company’s board, as in Adams and Ferreira (2009) and
Campbell and Mínguez-Vera (2008). For this variable, data were derived from the
DataStream database.
4.3.3 Sustainability performance. In this study, we constructed an aggregated SP index
using the annual environmental, social and economic scores obtained from Thomson
Reuters-ASSET 4. We measured SP by three dimensions (economic, social and
environmental) from each sustainability report. According to Singh et al. (2012), this
procedure needs to be based on both theoretical and empirical analyses. Thus, in accordance
with the instrumental stakeholder theory, the sustainability measurement was divided into
primary stakeholder groups (Clarkson, 1995), i.e. corporate governance (CG), employees and
suppliers (ES), customers and society (CS) and environment (E). This stakeholder approach
is supported by previous research like that of Othman and Ameer (2014) who separated SP
indices into community, diversity, environment and ethical standards.
We defined social SP by constructing the respective score using strengths and concerns
under the areas of community, diversity, human rights and employee relations. To compute the
SP score for each category, we used the number of strengths minus the number of concerns. All
the estimations in this study were carried out using the STATA program. For example, the
sustainability-rating index ASSET4 provides a detailed list of indicators used in its assessment Tax avoidance
(Thomson Reuters ASSET4, 2018) and was, therefore, used as input for our index.
4.3.4 Control variables
 Firm size (SIZE): Lanis and Richardson (2012) find that firms having larger
size would be more aggressive in its tax policy rather than small firms.
Furthermore, Gupta and Newberry (1997) argue that in some cases, size affects tax
avoidance. Therefore, we take size (SIZE) as a control variable in our analysis,
measured by the log of total assets;
 Leverage (LEV): Lanis and Richardson (2012) and Stickney and McGee (1982) used
leverage as a control variable. They found that firms having debts would be more
aggressive in gaining an opportunity to apply tax reduction as consequence of interest
payment (Sari and Tjen, 2017). LEV is measured by total debts divided by total assets; and
 Return on assets (ROA): It is measured as pre-tax income divided by total asset
(Mafrolla and D’Amico, 2016). Companies engage in tax avoidance to improve
performance. To control for overall performance, we include ROA.

5. Empirical results
5.1 Descriptive statistics
Table IV provides descriptive statistics for the regression variables such as the dependent
variable, the independent variable and the mediating variable. The panel presents
descriptive statistics for the entire sample, including the mean, minimum, median,
maximum and standard deviation.
The mean value of ETR is 0.239, the 25th (0.17), 50th (0.24) and 75th (0.30) percentiles as
well as the standard deviation is 0.502, are closely to Hoi et al. (2013) (25.3 per cent). In fact,
Hoi et al. (2013) report descriptive statistics of the remainder of their variables in a larger
sample that includes loss firms; they are difficult to compare; however, the proximity of the
cash ETR descriptive statistics indicates a closely matching sample.
The mean value of SP is 0.41, the 25th (0.32), 50th (0.43) and 75th (0.52) percentiles as well as the
standard deviation is 0.134. Regarding previous study, SP is a significant evolution. In this area,
Boudreau and Watson (2013) observe many organizations that have increased the levels of SP.
Regarding the BGD, the mean value is 13.839, and the standard deviation is 11.506. The
25th percentile is still 0, while the mean is 12.5 and the 75th percentile 22.22. This is higher

Variables Mean Min Median Max SD Per 25 Per 75

ETR 0.239 0 0.24 11.61 0.502 0.17 0.30

SP 0.415 0 0.439 0.622 0.134 0.32 0.52
BGD 13.839 0 12.5 62.5 11.506 0 22.22
Size 6.947 4.831 6.726 8.419 1.653 5.12 8.32
ROA 0.081 0.001 0.097 0.112 0.022 0.053 0.093
LEV 0.259 0 0.247 0.860 0.145 0.163 0.34

Notes: ETR, effective tax rate; SP, sustainability performance; BGD, board gender diversity: the
percentage of female directors serving on a company’s board; CSR, corporate social responsibility score. Table IV.
SIZE is the natural logarithm of total assets; ROA is return on assets; and LEV is the ratio total debt to total Summary statistics
equity of the sample
JFC than the number given in, for instance Adams and Ferreira (2009), who reported a value of
8.5 per cent.
This is probably due to the fact that our sample is more recent, 2005-2017, compared to
1996-2003 for Adams and Ferreira (2009). In this context, Figure 2 reports the evolution of
BGD in UK firms over the period 2005-2017. This figure shows that a significant evolution
in the percentage of women on the board of directors from 2005 to 2017.

5.2 Correlation analysis

Table V reports the correlations among the variables. As a rule of thumb, a correlation of
0.70 or higher in absolute value may indicate a multicollinearity issue (Liu et al., 2014). The

Board gender
Performance suistainability Tax avoidance
diversity

Figure 1.
Conceptual Agency theory Female leadership style is Stakeholder theory
framework democratic, proactive and unique

Figure 2.
Evolution of BGD
2005-2017

Sustainability
performance (SP)

Mediation Path Indirect Path (c’)

Figure 3.
Basic path diagram
showing posited
direct and indirect Board gender Tax avoidance
paths among BGD, diversity (BGD) (ETR)
Direct Path (c)
SP and tax avoidance
results show that the highest correlation coefficient of 0.525 appears between SP and FSIZE. Tax avoidance
However, as these two variables are used alternately in the specifications as dependent
variables, their high correlation is not an issue. Multicollinearity was also checked by
calculating the variance inflation factors (VIFs). The highest observed VIF value in the
study variables is 1.97, which is well below the conventional cut-off of 10.0 (Chatterjee and
Hadi, 2012).
Consequently, the VIF is weak, suggesting the absence of multicollinearity between the
independent variables of our model[2]. It can be noted from Table II that there is a
significant and positive correlation between BGD and SP engagements, which suggests
female directors influence SP. Furthermore, there is a positive and significant relationship
between BGD and firm size, which suggests that larger firms are more likely to appoint
female directors.

5.3 Results of structural equation model

To investigate the mediating effect, Sobel (1982) proposes a procedure to examine the
statistical significance of the indirect effect of the intermediate or mediating variable by
testing the null hypothesis that states the indirect effect of the mediating variable on the
relationship between the independent and dependent variable is not occurred.
5.3.1 Estimating the direct link between board gender diversity and tax avoidance. As
can be seen from Table VI, BGDs reported negatively and significantly associated with
corporate tax avoidance (ETR) ( b 1 = –0.223, Z = –5.55). The results of this study show that
the presence women on the board decrease the level of corporate tax avoidance. This finding
corroborates the ideas of Lanis and Richardson (2016) who suggested that the presence of
women on corporate boards reduces corporate tax avoidance. There are several possible
explanations for this result. Shareholders prefer higher corporate tax avoidance over lower
corporate tax avoidance. Their preferences should be aligned with management. Increased
monitoring and the resources provided by female directors could help to overcome agency
problems. In fact, women increasingly fulfilled higher positions on boards and management
positions over time. According to Eagly and Johannesen–Schmidt (2001), women tend to
have better communal characteristics, like being kind, helpful and sensitive. While men
have more agents characteristics, like being dominant.
In contrary to the present results, some previous studies have demonstrated that the
presence of women on corporate boards has managed to contain managerial opportunistic
behaviors and prevent their false benevolence with the intention to avoid tax to maximize
the shareholders’ interests (Adams and Ferreira, 2009).

ETR SP BGD SIZE ROA LEV VIF

ETR 1.000 1.23

SP –0.152*** 1.000 1.25
BDG –0.253** 0.328*** 1.000 1.97
SIZE 0.361*** 0.525*** 0.355** 1.000 1.65
ROA –0.082 0.266*** 0.287*** 0.333*** 1.000 1.78
LEV 0.044 –0.013 0.025 0.042 –0.055 1.000 1.85
Table V.
Notes: ETR, effective tax rate; SP, sustainability performance; BGD, board gender diversity: the
percentage of female directors serving on a company’s board; CSR, corporate social responsibility score. Pearson correlations
SIZE is the natural logarithm of total assets; ROA is return on assets; and LEV is the ratio total debt to total for independent
equity *, **and ***indicate significance at the 0.10, 0.05 and 0.01 levels, respectively variables in UK firms
JFC ETR SP ETR
Variables Model 1 Model 2 Model 3

Constant 0.125 (11.25)*** 0.062 (6.11)*** 0.325 (8.25)***

BGD –0.223 (–5.55)*** 0.256 (8.15)*** –0.125
SP –0.315 (–8.01)***
SIZE 0.053 (2.02)** 0.223 (7.65)***
ROA –0.256 0.125 (8.05)***
LEV 0.362 (7.75)*** 0.187
Firm fixed effects Yes Yes Yes
Year fixed effects Yes Yes Yes
R2 0.6112 0.5978 0.6125
Number of observations 3,900 3,900 3,900
Table VI.
Notes: ETR, effective tax rate; SP, sustainability performance; BGD, board gender diversity: the
Results of regression percentage of female directors serving on a company’s board; CSR, corporate social responsibility score.
analysis for SIZE is natural logarithm of total assets; ROA is return on assets; and LEV is the ratio total debt to total
mediation equity *, **and ***indicate significance at the 0.10, 0.05 and 0.01 levels, respectively

The results, as shown in Table VI, indicate that a positive and significant relationship
between size (SIZE), leverage (LEV) and tax avoidance ( b 2 = 0.053; b 3 = 0.362) at the level
of 5 and 1 per cent, respectively. In summary, these results show when firms with high
leverage exhibits more tax avoidance. The size significantly explains the political cost
hypothesis (Zimmerman, 1983). Our results also show that the regression coefficient of ROA
is positively and not significantly associated with tax avoidance.
5.3.2 Estimating the link between board gender diversity and sustainability performance.
Table VI presents the results of estimating equation (2) to test our H2. With respect to
equation (2), Table VI shows that BGD affects positively and significantly ( b 1 = 0.256, Z =
8.15) SP. This result indicates that firms with the presence of women on the board are
associated with higher engagement SP. This finding supports previous studies which link
BGD and SP (Kang et al., 2007; Kassinis et al., 2016; Francoeur et al., 2017; Yasser et al.,
2017). Kang et al. (2007) argue that diversity has become one of the most important variables
of study in board of director research. Galbreath (2011) explains that the presence of women
on boards provides new insights, new information and new perspectives, which help in
taking better decisions. Women on boards have been expected to engage in and build better
relations with stakeholders because of their greater focus on the needs of others, positioning
firms not only to better understand the social demands of their constituent base, but also to
avoid costly missteps with strategic decisions regarding sustainability (Hisrich and Brush,
1984; Rosener, 1995).
This finding corroborates the ideas of vein Harjoto and Jo (2015) who suggested that for
near 15,000 US firms find empirical support that gender composition act as moderator with
a positive effect on sustainability performance by contributing to reduce conflicts of
interests among different stakeholders. In the same context, UK firms are characterized by
an evolution of presence of woman in the board that raises the confidence of investors, who
expect increasing accountability, transparency and moral duty from firms’ directors
(Arfken et al., 2004; Flynn and Adams, 2004).
5.3.3 Estimating the indirect link between board gender diversity and tax avoidance. In
this step, we test the relationship between BGD and tax avoidance to adding the mediator
variable, namely, SP. Step 3 in testing for the mediating effect needs to evaluate the original
direct effect (c) and indirect effect (c’) as illustrated in Figure 2.
 The results, as shown in Table VI, indicate that a positive and significant relationship Tax avoidance
between BGDs and mediating variable (SP). This result is significant at p = 0.000 level.
When SP is included in the full model, then the coefficient of BGD was found to be
insignificant in Model 3 and the coefficient of SP was found to be significant at the 1 per cent
level ( b = –0.315, p < 0.01). SP, as a strategic motive, acts to negate the impact of gender
diversity on corporate tax avoidance.
These results collectively indicate that SP fully mediates the relation between BGD and
tax avoidance. One reason for this can be the implication that high presence of women in the
firms is a social dimension type of SP (Galbreath, 2011). Because of their relational abilities,
women on boards are more likely able to engage with multiple stakeholders and respond to
their needs, resulting in an avenue for demonstrating social responsiveness (Galbreath,
2011). Thus, companies undertake multiple forms of SP, including gender diversity at the
board level, and allocate slack resources to these efforts to reduce corporate tax avoidance.
Hendry and Kiel (2004) reveal that the most important internal factors/drivers that influence
sustainability are the board of directors. The presence of women on boards provides new
insights, new information and new perspectives, which help in taking better decisions
(Sikand, 2013). Rosener (1995) suggests that women are particularly adept at problem-
solving, which affords them strong skills to deal effectively with ambiguity, conflict and
uncertainty. Clarkson (1995) provides that women board members are expected to influence
the social dimension of sustainability by the way reducing tax avoidance.

5.4 Additional test

As an extension to our research, we explore the effect of the three dimensions of SP
individually: environmental, social and economic scores. The environmental sustainability
relating to resource use and waste generation can support the assessment of the cost savings
and revenues realized by a company through increased process efficiency. It covers some
categories such as energy consumption total water consumption emission of greenhouse
gases, waste emission reduction, product innovation and resource reduction. The social
sustainability is covered through the use of indicators include human rights, labor and
employment issues, supplier relationships, community initiatives, corporate philanthropy.
The economic sustainability indicators include both human and financial capital
considerations: financial performance indicators, tangible and intangible investments,
impacts on investors, impacts on employees, impacts on communities like job creation,
infrastructure development, technology transfer, social capital formation.
Table VII reports the estimated results from the regression model for each one. Models 2,
3, 4, 5, 6, show the mediation role of three dimension of SP on the relation between BGD and
tax avoidance. The results show that BGD has a positive and insignificant effect on
economic dimension of SP. But, there is a positive and significant impact on social and
environmental dimensions.
In Models 5-6, we estimate the mediating effect of social and environmental dimension of
SP on the relationship between BGD and tax avoidance. We find that environmental
dimension partially mediates the relationship between BGD and tax avoidance. In contrast,
social dimension fully mediates this relation. Our study reveals that social dimension has a
major role in mediating the relation between BDG and tax avoidance.

5.5 Robustness tests

To check the robustness of our main results, firstly, we verify whether the mediated role of
SP remains intact if we replace the SP index with CSR index. In fact, many authors suggest
JFC Step 1 Step 2 Step 3
ETR SP/ECO SP/ENV SP/SOC ETR
Variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6

Constant 0.125 (11.25)*** 0.085 (7.85)*** 0.563 (11.33)*** 0.225 (10.33)*** 0.236 (7.25)*** 0.358 (9.11)***
BGD –0.223 (–5.55)*** 0.645 0.475 (2.12)** 0.659 (9.78)*** –0.263 (2.01)** –0.485
SP/ ENV –0.855 (2.10)**
SP/SOC –0.785 (8.76)***
SIZE 0.053 (2.02)** 0.425 (9.66)*** 0.532 (2.10)** 0.123 (2.11)**
ROA –0.256 0.235 (10.15)*** 0.362 (5.36)*** –0.224
LEV 0.362 (7.75)*** 0.254 0.225 (4.25)*** 0.389 (8.95)***
Firm fixed Yes Yes Yes Yes Yes Yes
effects
Year fixed Yes Yes Yes Yes Yes Yes
effects
R2 0.6112 0.5887 0.5962 0.6312 0.6415 0.6231
Table VII. Number of 3,900 3,900 3,900 3,900 3,900 3,900
The mediating role observations
of the SP dimension
Notes: ETR, effective tax rate; SP, sustainability performance; BGD, board gender diversity: the
on the relation percentage of female directors serving on a company’s board; CSR, corporate social responsibility score.
between BGD and SIZE is natural logarithm of total assets; ROA is return on assets; and LEV is the ratio total debt to total
ETR equity *, **and ***indicate significance at the 0.10, 0.05 and 0.01 levels, respectively

CSR as a measurement of SP (Weber, 2008). In the same area, Boudreau and Watson (2013)
argue that have good SP are likely to have high levels of CSR disclosure.
This is because they should be willing to let their stakeholders know of their impressive
SP and thus increase stakeholders’ trust and organization’s reputation (Finch, 2005). The
results are similar to those previously reported, as displayed in Table VIII.
Secondly, other robustness test of our results, we replace the ETR with the ETR
differential (DETR), which is measured by the difference between the statutory tax rate and
the firm’s ETR[3]. Following Hanlon and Heitzman (2010), we re-estimate regressions (1), (2)

ETR CSR ETR

Variables Model 1 Model 2 Model 3

Constant 0.125 (11.25)*** 0.526 (9.15)*** 0.325 (8.25)***

BGD –0.223 (–5.55)*** 0.631 (14.10)*** –0.652
CSR –0.751 (–2.01)**
SIZE 0.053 (2.02)** 0.325 (8.99)***
ROA –0.256 0.126 (2.02)**
LEV 0.362 (7.75)*** 0.546
Firm fixed effects Yes Yes Yes
Year fixed effects Yes Yes Yes
R2 0.6112 0.6451 0.6952
Number of observations 3,900 3,900 3,900
Table VIII.
Notes: ETR, effective tax rate; SP, sustainability performance; BGD, board gender diversity: the
Robustness test via percentage of female directors serving on a company’s board; CSR, corporate social responsibility score.
other measure of SP SIZE is natural logarithm of total assets; ROA is return on assets; and LEV is the ratio total debt to total
(CSR) equity *, **and ***indicate significance at the 0.10, 0.05 and 0.01 levels, respectively
 Tax avoidance
DETR SP DETR
Variables Model 1 Model 2 Model 3

Constant 0.274 (12.35)*** 0.062 (6.11)*** 0.258 (9.22)***

BGD –0.426 (–6.45)*** 0.256 (8.15)*** –0.421
SP –0.533 (–2.03)**
SIZE 0.246 0.223 (7.65)***
ROA –0.158 (–2.01)** 0.125 (8.05)***
LEV 0.412 (6.15)*** 0.187
Firm fixed effects Yes Yes Yes Table IX.
Year fixed effects Yes Yes Yes Robustness test via
R2 0.5281 0.5978 0.6003 other measure of tax
Number of observations 3,900 3,900 3,900 avoidance (DETR)

and (3) using DETR as a proxy for the tax avoidance. Table IX shows that the results are
similar to those previously reported, as displayed in Table VI.

6. Conclusion
The present study was designed to determine the mediating effect of SP on the relationship
between BGD and tax avoidance. Based on a sample comprised of UK and French firms
over the 2005-2017 period, the results show a negative and significant association between
BGD and tax avoidance. We also found that the higher percentage of women on the board
affects positively and significantly SP.
In fact, when we introduced SP as a mediator variable, these findings suggest that SP
fully mediates the relationship between BGD and tax avoidance in UK firms. It was also
shown in the additional test that social SP fully mediates the relationship between BGD;
however, the environmental SP partially mediates this relationship.
The present study makes several noteworthy contributions to literature; we add evidence
to the corporate tax avoidance literature as to why certain companies engage more in
corporate tax avoidance than others and emphasize the importance of the diversity in the
board. Also, the empirical findings in this study provide a new understanding of the relation
between tax avoidance and BGD by providing the importance of the engagements firms to
SP.
Despite its exploratory nature, this study offers some insight into the regulators and the
managers. It helps also the regulators to improve accounting rules and tax rules. The
empirical results of this study provide an answer to the question about both the direct and
indirect relationship between tax avoidance and BGD. This study proved empirically that
firms with higher percentage of women on the board are more engaged in SP activities, and
by the way, have less level of tax effective rate. The scope of this study was limited in terms
of the sample data; we suggest this study in the European context. Future research should,
therefore, concentrate on investigating the interaction between board gender, women
directors, tax avoidance and sustainability reporting.

Notes
1. X : Board gender diversity
Y : Tax avoidance
M : Sustainability performance
JFC 2. Hair et al. (2006) suggest that a VIF value less than 10 corresponds to a low level of
multicollinearity among the explanatory variables.
3. Hanlon and Heitzman (2010) list 12 measures of tax avoidance commonly used in the literature.

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About the authors

Anis Jarboui is a Full Professor of Finance and Accounting. His research interests are in corporate
governance, corporate social responsibility and taxation. He has recently published many academic
papers in international refereed journals – Nice University – EM Normandie–Sfax University, H
index – 25. Available at: www.researchgate.net/profile/Anis_Jarboui. Anis Jarboui is the
corresponding author and can be contacted at: anisjarboui@yahoo.fr
Maali Kachouri Ben Saad is a Doctor in Accounting and Finance Methods from the Faculty of
Economic Sciences and Management of Sfax-Tunisia. Her main research interests are related to,
corporate governance, information transparency, financial communication, corporate social
responsibility, board gender diversity and performance sustainability.
Rakia Riguen is a Doctor in Accounting and Finance Methods from the Faculty of Economic Sciences
and Management of Sfax-Tunisia. Her main research interests are related to taxation, audit, corporate
governance, earnings quality, corporate social responsibility, board gender diversity and performance
sustainability. Rakia does research in Accounting Scholarship. Their current project is ‘Taxation’.

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