Drivers for Tax Mimicry: Moderating Role of Homogeneity and Expertise

[Purpose]This study investigates the role of operational homogeneity and tax expertise in tax strategy mimicry. We investigate whether firms are more likely to duplicate tax avoidance strategy when they share operational strategies with industry peers, implying lower uncertainty risk and information－processing costs. [Methodology]We use operational homogeneity as the factor that reduces risks and costs and thus, facilitates tax strategy mimicry. The BOD’s tax expertise also plays a role in tax strategy mimicry based on industry homogeneity. Using a Korean sample of 2,544 firm－years from 2003 to 2014, we examine theses factors facilitate tax avoidance mimicry among firms. [Findings]Our results show that homogeneous industry firms employ tax strategy mimicry. Furthermore, the association between homogeneity and tax strategy mimicry is more pronounced in firms with tax experts on their boards of directors. [Implications]These results suggest that firms typically engage in strategy mimicry when they face lower risks and information－processing costs and higher pressure from investors.