Industry Expert Directors and Tax Avoidance: The Role of Co-Option and Board Function

Departing from the existing literature, this study disaggregates non-executive directors with industry expertise into co-opted directors (those appointed after the incumbent CEO assumes office) and non-co-opted directors, and examines their associations with corporate tax avoidance. It further examines whether these associations vary according to whether such directors serve in advisory or monitoring roles. Using a sample of UK non-financial firms over the period 2000–2020 and firm fixed-effects estimation, the results indicate that greater board representation of industry expert directors is associated with lower tax avoidance. This association is primarily driven by non-co-opted rather than co-opted industry expert directors. Among non-co-opted industry expert directors, the association is stronger when directors serve in monitoring rather than advisory roles. Additional analyses indicate that the documented associations are more pronounced among firms exhibiting aggressive tax positions relative to size- and industry-matched peers, those characterized by heightened operating risk, and those operating in more competitive industries. Overall, the results indicate that industry expertise is associated with more effective board oversight of tax-related managerial discretion, particularly when such expertise is less susceptible to CEO influence and is deployed through monitoring-oriented board functions.