We examine the role of identity in corporate governance, focusing on an important dyad: audit committee chair and chief financial officer. Drawing on identity theory, which argues that people have lower trust in those they perceive to be different from themselves, we posit that the audit committee chair’s trust in the chief financial officer is lower when the two are different genders. We find that a gender difference between the two is associated with greater monitoring by the chair, consistent with lower trust. This effect is attenuated when a firm has value-based controls that promote diversity tolerance or when a chief financial officer seems more trustworthy. We find no evidence that the increased monitoring improves financial reporting. However, we find evidence that the increased monitoring generates negative externalities by distracting the chief financial officer, as proxied by lower operational performance. Our findings underscore the importance of identity in corporate governance.

Performance-contingent cash and tangible rewards are commonly used to motivate employees, and the taxation of such rewards is unavoidable. We use two experiments to examine how the effect of reward taxation on employee effort varies by reward type. In Experiment 1, we find reward taxation decreases positive affect, increases negative affect, and decreases reward attractiveness for employees when rewards are tangible, but not when rewards are cash. In Experiment 2, we find reward taxation reduces employee effort when rewards are tangible, but not when rewards are cash. Collectively, this evidence advances knowledge at the intersection of tax and management accounting by explaining why reward type alters the effect of reward taxation on employee effort. Moreover, our experimental results inform managers of a potential downside to using tangible rewards to motivate employees. Data Availability: Authors will make data available on request.