Mitigating Tax Avoidance: The Role of Board Interpersonal Diversity in the United Kingdom

ABSTRACT This study investigates how the board's interpersonal diversity is associated with company tax avoidance behaviour. The ‘Out of Africa’ theory of human origin, which assesses how individual attributes (including cognitive capabilities, capacities and problem‐solving style) and interpersonal trust are shaped by human evolution, forms the basis of the interpersonal diversity scale. A broad literature affirms how diversity in cognitive skills and interpersonal trust enhances board performance and monitoring mechanisms within the board members. In this study, we analyse how the interpersonal diversity of the board members for UK firms over the period 1999 to 2019 mitigates agency problems and tax avoidance. Our main finding shows interpersonal diversity is associated with lower tax avoidance. These results emphasise the importance of the composition of boards with members from diverse genetic backgrounds. This could be encouraged through disclosure requirements, guidelines or incentives for companies to diversify their board composition.