Purpose: The purpose of this paper is to address whether gender diversity on compensation committees ensures objective determination of CEOs’ compensation.Design/methodology/approach: The authors use a sample of companies listed in China from 2006 to 2015. The authors use pooled ordinary least square regression as the baseline methodology, and two-stage least square regression and propensity score matching to control for endogeneity.Findings: The authors find evidence that gender-diverse compensation committees limit CEOs’ total cash compensation and strengthen the link between CEO pay and firm performance, but only independent female directors have a significant impact, indicating that the monitoring effect outweighs the executive effect. Moreover, compensation committees with a critical mass of female directors have more impact on CEOs’ total pay and the link between CEO pay and firm performance than do committees with a single female director. Finally, gender-diverse compensation committees are more effective in setting CEOs’ compensation in state-controlled firms, where agency issues are more severe.Practical implications: Female directors can improve firm-level governance by monitoring management actions, such as setting CEOs’ compensation. The study contributes to the debate on gender diversity in the boardroom, finding a positive economic effect. The study sheds light on China’s diversity practices at the director level and provides empirical guidance to China’s regulatory bodies.Originality/value: The authors extend earlier studies by providing the first empirical evidence that gender-diverse compensation committees strengthen the link between CEO pay and firm performance; that independent female directors are more effective in the monitoring role than executive female directors; that compensation committees with a critical mass of female directors are more effective in setting CEOs’ pay than are committees with a single female director; and that the influence of gender-diverse compensation committees on CEOs’ pay varies by type of ownership.

Paying taxes to support the societies in which they operate is both a legal and ethical responsibility of business. Nevertheless, some companies work to avoid taxes, which could cause society to question the legitimacy of the organisation. Many companies provide reports on their corporate social responsibility (CSR) activities; more transparent CSR reports may help to restore the legitimacy loss associated with tax avoidance. We investigate the relationship between tax avoidance and CSR report readability among Chinese companies. We find a positive relationship between corporate tax avoidance and the readability of CSR reports. This relation is weaker among state‐owned enterprises, which may have stronger pre‐existing legitimacy owing to their relationship with the state. The relationship is also weaker among companies in less developed regions of China, which have less developed institutions to monitor organisational legitimacy. Overall, our results are consistent with the notion that CSR reporting represents an attempt to overcome legitimacy concerns arising from tax avoidance. Our findings indicate that tax avoidance and CSR reporting are alternative means of establishing legitimacy, rather than complementary reflections of an organisational culture that values (or devalues) CSR.