Financial constraints and corporate governance as moderating variables for the determinants of tax avoidance
-
Author(s)Dica Lady SilveraLink to ORCID Index: https://orcid.org/0000-0003-0594-6391
,
Achmad HizaziLink to ORCID Index: https://orcid.org/0000-0002-3470-4888
,
M. Syurya HidayatLink to ORCID Index: https://orcid.org/0000-0002-9279-325X
,
Sri RahayuLink to ORCID Index: https://orcid.org/0000-0002-9508-378X
-
DOIhttp://dx.doi.org/10.21511/imfi.19(1).2022.21
-
Article InfoVolume 19 2022, Issue #1, pp. 274-286
- Cited by
- 1237 Views
-
612 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
The purpose of this study is to empirically investigate the effect of financial constraints and corporate governance as moderating variables on the determinants of tax avoidance, which includes foreign activity, corporate social responsibility, and political connections. All companies listed on the Indonesia Stock Exchange from 2017 to 2019 are the objects of this study. The panel data regression was used to address the research question. The findings show that foreign activity, corporate social responsibility, and political connections significantly affected tax avoidance with alpha 5%. The results also show that corporate governance can reduce the positive impact of foreign activity, corporate social responsibility, and political connection on tax avoidance with alpha 1%.
Moreover, financial constraints may strengthen the positive impact of corporate social responsibility on tax avoidance with alpha 5%. The findings further provide empirical evidence about one of the strategies businesses use to conduct tax avoidance, notably foreign activity, corporate social responsibility, and political connection. Thus, companies that implement good corporate governance could reduce corporate tax avoidance acts, which can harm the company’s image and lead to a decrease in company value. This study discovered a new proxy for measuring financial constraints, as well as developments in the political connection.
- Keywords
-
JEL Classification (Paper profile tab)G30, H26, M41
-
References90
-
Tables5
-
Figures0
-
- Table 1. Regression results for Model 1
- Table 2. Regression results for Model 2
- Table A1. Companies with political connections
- Table B1. Financial constraint score
- Table C1. Descriptive statistics
-
- Adhikari, A., Derashid, C., & Zhang, H. (2006). Public policy, political connections, and effective tax rates: Longitudinal evidence from Malaysia. Journal of Accounting and Public Policy, 25, 574-595.
- Almeida, C. A., Pereira, G. M., & Leandro, E. (2004). The influence of family support, parental coping and school support on adherence to type 1 diabetes’ self-care in adolescents. In A. P. Escher, & A. Li (Eds.), Type 1 Diabetes. IntechOpen.
- Anthony, R. N., & Vijay, G. (2009). Management Control System. Jakarta: Salemba Empat.
- Ariffin, Z. Z. (2013). Tax planning of a company operating foreign activity in Malaysia. International Journal of Trade, Economics and Finance, 4(4), 209-212.
- Arifin, Z. (2009). Evaluasi Pembelajaran (1st ed.). Jakarta. (In Indonesian).
- Atwood, T. J., Drake, M. S., Myers, J. N., & Myers, L. A. (2012). Home country tax system characteristics and corporate tax avoidance: International evidence. The Accounting Review, 87, 1831-1860.
- Badan Pemeriksa Keuangan Republik Indonesia (BPK RI). (2019). Ikhtisar Hasil Pemeriksaan (Semester I 2019). (In Indonesian).
- Barton, J., & Collins, A. (1997). Portfolio assessment: A handbook for educators. Menlo Park, CA: Innovative Learning Publications.
- Bayar, O., Huseynov, F., & Sardarli, S. (2018). Corporate Governance, Tax Avoidance, and Financial Constraints. Financial Management, 47(3), 651-677.
- Berthelot, S., & Robert, A. M. (2011). Climate change disclosures: An examination of Canadian oil and gas firms. Issues in Social and Environmental Accounting, 5(1/2), 106-123.
- Blaylock, B., Shevlin, T., & Wilson, R. J. (2012). Tax Avoidance, Large Positive Temporary Book-Tax Differences, and Earnings Persistence. Accounting Review, 87(1), 91-120.
- Branco, M. C., & Rodrigues, L. L. (2006). Corporate Social Responsibility and Resource-Based Perspectives. Journal of Business Ethics, 69, 111-132.
- Brealey, R. A., Myers, S. C., & Allen, F. (2016). Principles of Corporate Finance (12th ed.). New York: McGraw-Hill Education.
- Brian, I., & Martani, D. (2014). Analisis Pengaruh penghindaran Pajak dan Kepemilikan Keluarga terhadap Waktu pengumuman Laporan Keuangan Tahunan Perusahaan. Finance and Banking Journal, 16(2).
- Brown. K. B. (2012). A Comparative Look at Regulation of Corporate Tax Avoidance. New York: Springer.
- Chang, L. L., Hsiao, F. D., & Tsai, Y. C. (2013). Earnings, institutional investors, tax avoidance, and firm value: Evidence from Taiwan. Journal of International Accounting, Auditing and Taxation, 22(2), 98-108.
- Chariri, A., & Imam, G. (2007). Teori Akuntansi. Semarang: Badan Penerbit Diponegoro. (In Indonesian).
- Chen, S., Chen, X., Cheng, Q., & Shevlin, T. J. (2010). Are Family Firms More Tax Aggressive Than Non-Family Firms? Journal of Financial Economics, 95(1), 41-61.
- Chen, X., Hu, N., Wang, X., & Tang, X. (2010). Tax avoidance and firm value: evidence from China. Nankai Business Review International, 5(1), 25-42.
- Chernev, A., & Blair, S. (2015). Doing Well by Doing Good: The Benevolent Halo of Corporate Social Responsibility. Journal of Consumer Research, 41(6), 1412-1425.
- Chow, C. W., & Wong-Boren, A. (1987). Voluntary Financial Disclosure by Mexican Corporations. The Accounting Review, 62(3), 533-541.
- Cowen, S. S., Ferreri, L. B., & Parker, L. D. (1987). The Impact of Corporate Characteristics on Social Responsibility Disclosure: A Typology and Frequency-Based Analysis. Accounting, Organizations and Society, 12(2), 111-122.
- Deak, D. (2009). Legal Considerations of Tax Evasion and Tax Avoidance. Society and Economy, 26(1), 41-85.
- Dechow, P. M., Ge, W., Larson, C. R., & Sloan, R. G. (2007). Predicting Material Accounting Manipulation.
- Deegan, C. (2002). Introduction: The legitimising effect of social and environmental disclosures – a theoretical foundation. Accounting, Auditing & Accountability Journal, 15(3), 282-311.
- Desai, M. A., & Dharmapala, D. (2009). Corporate Tax Avoidance and Firm Value. The Review of Economics and Statistics, 91(3), 537-546.
- Dewi, N., & Jati, I. (2014). Pengaruh Karakter Eksekutif, Karakteristik Perusahaan, Dan Dimensi Tata Kelola Perusahaan Yang Baik Pada Tax Avoidance Di Bursa Efek Indonesia. E-Jurnal Akuntansi Universitas Udayana, 6(2), 249-260. (In Indonesian).
- Dewi, R. R., & Sitinjak, M. (2009). Analisis pengaruh karakteristik perusahaan terhadap. Jurnal Informasi, Perpajakan, Akuntansi Dan Keuangan Publik, 4(2), 149-170. (In Indonesian).
- Dharma, & Noviari. (2017). Pengaruh Corporate Social Responsibility Dan Capital Intensity Terhadap Tax Avoidance. E-Jurnal Akuntansi. Universitas Udayana, 18(1), 529-556. (In Indonesian).
- Diantari, P. R., & Ulupui, I. A. (2016). Pengaruh Komite audit, Proporsi Komisaris Independen, dan Proporsi kepemilikan Institusional terhadap Tax Avoidance. E-Jurnal Akuntansi Universitas Udayana, 16(1), 702-732. (In Indonesian).
- Direktorat Jenderal Pajak. (2015). Annual Report DJP. (In Indonesian).
- Dowling, J., & Pfeffer, J. (1975). Organizational Legitimacy: Social Values and Organizational Behavior between the Organizations seek to establish congruence. The Pacific Sociological Review, 18(1), 122-136.
- Dyreng, S. D., Hanlon, M., & Maydew, E. L. (2010). The effects of executives on corporate tax avoidance. Accounting Review, 85(4), 1163-1189.
- Faccio, M. (2007). The characteristics of politically connected firms (Purdue CIBER Working Paper No. 51).
- Faccio, M., Masulis, R. W., & McConnell, J. J. (2006). Political Connections and Corporate Bailouts. The Journal of Finance, 61(6), 2597-2635.
- Fazzari, S. M., Hubbard, R. G., Petersen, B. C., Blinder, A. S., & Poterba, J. M. (1988). Financing constraints and corporate investment. Brookings Papers on Economic Activity, 1, 141-206.
- Ferdiawan, Y., & Firmansyah, A. (2017). Pengaruh Political Connection, Foreign Activity, dan, Real Earnings Management Terhadap Tax Avoidance. Jurnal Riset Akuntansi dan Keuangan, 5(3), 1601-1624. (In Indonesian).
- Ferreira, M., & Vilela, A. (2004). Why Do Firms Hold Cash? Evidence from EMU Countries. European Financial Management, 10(2), 295-319.
- Fisman, R. (2001). Estimating The Value Of Political Connection. The American Economic Review, 91(4), 1095-1102.
- Fontanella, A., & Martani, D. (2014). Pengaruh Karakteristik Perusahaan terhadap Book Tax Differences (BTD) pada Perusahaan Listed di Indonesia. Makalah dipresentasikan pada Simposium Nasional Akuntansi (SNA) 17. (In Indonesian).
- Global Witness. (n.d.). Official site.
- Graham, J. R., & Tucker, A. L. (2006). Tax shelters and corporate debt policy. Journal of Financial Economics, 81(3), 563-594.
- Hadjoh, R. A., & Sukartha, I. M. (2013). Pengaruh Ukuran Perusahaan, Kinerja Keuangan dan Eksposur Media pada Pengungkapan Informasi Lingkungan. E-Jurnal Akuntansi, 4(1), 1-17.
- Hanlon, M., & Heitzman, S. (2010). A review of tax research. Journal of Accounting and Economics, 50(2-3), 127-178.
- Hanlon, M., Maydew, E., & Shevlin, T. (2005). Book-Tax Conformity and the Information Content of Earnings.
- Hennessv, C. A., & Whited, T. M. (2005). Debt Dynamics. Journal of Finance, 60(3), 1129-1165.
- Hidayah, N. (2015). Pengaruh Perusahaan Keluarga, Multinasional Company, dan Kepemilikan Institusional terhadap Tax Avoidance. Jom FEKON, 2(2). (In Indonesian).
- Hidayat, F. A. (2020). Pengaruh Corporate Social Responsibility Terhadap Tax Avoidance. Universitas Airlangga. (In Indonesian).
- Hidayati, N., & Fidiana. (2017). Pengaruh Corporate Social Responsibility dan Corporate Governance Terhadap Penghindaran Pajak. Jurnal Ilmu dan Riset Akuntansi, 6(3). (In Indonesian).
- Hines, J. R. (1999). Lessons from Behavioral Responses to International Taxation. National Tax Journal, 52(2).
- Hoi, C. K., Wu, Q., & Zhang, H. (2013). Is Corporate Social Responsibility (CSR) Associated with Tax Avoidance? Evidence from Irresponsible CSR Activities. The Accounting Review, 88(6), 2025-2959.
- Indonesia Stock Exchange (IDX). (n.d.). Official site. (In Indonesian).
- Jacob, J. (1996). Taxes and Transfer Pricing: Income Shifting and the Volume of Intrafirm Transfers. Journal of Accounting Research, 34(2), 301-312.
- Jensen, M. C. (1986). Agency cost of free cash flow, corporate Finance, and takeovers. American Economic Review, 76(2), 323-329.
- Jensen, M. C., & Meckling, W. H. (1976). Theory of The Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3(4), 305-360.
- Kaplan, S., & Zingales, L. (1997). Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints? The Quarterly Journal of Economics, 112(1), 169-215.
- Kementerian Keuangan Direktorat Jenderal Pajak (DJP). (n.d.). Realisasi Pendapatan. (In Indonesian).
- Kementerian Keuangan Republik Indonesia. (2019). APBN Kita: Kinerja dan Fakta. (In Indonesian).
- Kim, C., & Zhang, L. (2016). Corporate Political Connections and Tax Aggressiveness. Contemporary Accounting Research, 33(1), 78-114.
- Kim, J., Li, Y., & Zhang, L. (2011). Corporate tax avoidance and stock price crash risk: Firm-level analysis. Journal of Financial Economics, 100(3), 639-662.
- Kotler, P., & Lee, N. (2005). Corporate Social Responsibility: doing the most good for your company and your cause. New Jersey: John Wiley & Sons, Inc.
- Krueger, A.O. (1974). The Political Economy of the Rent-seeking Society. The American Economic Review, 64(3), 291303.
- Laguir, I., Staglianò, R., & Elbaz, J. (2015). Does corporate social responsibility affect corporate tax aggressiveness? Journal of Cleaner Production, 107, 662-675.
- Lanis, R., & Richardson, G. (2012). Corporate Social Responsibility and tax aggressiveness: An empirical analysis. Journal of Accounting and Public Policy, 31(1), 86-108.
- Lanis, R., & Richardson, G. (2015). Is Corporate Social Responsibility Performance Associated with Tax Avoidance? Journal of Business Ethics, 127(2), 439-457.
- Law, K. K. F., & Mills, L. F. (2015). Taxes and Financial Constraints: Evidence from Linguistic Cues. Journal of Accounting Research, 53(4), 777-819.
- Leblang, S. (1998). International Double Nontaxation. Tax Notes International, 134(10), 181-183.
- Leuz, C., & Oberholzer-Gee, F. (2006). Political Relationships, Global Financing, And Corporate Transparency: Evidence From Indonesia. Journal of Financial Economics, 81, 411-439.
- Lim, Y. (2011). Tax Avoidance, Cost of Debt and Shareholder Activism: Evidence from Korea. Journal of Banking and Finance, 35, 456-470.
- Lin, K. Z., Cheng, S., & Zhang, F. (2017). Corporate Social Responsibility, Institutional Environments, and Tax Avoidance Evidence from a Subnational Comparison in China. The International Journal of Accounting, 52(4), 303-318.
- Masri, I., & Martani, D. (2012). Pengaruh Tax Avoidance Terhadap Cost Of Debt. Simposium Nasional Akuntansi XV. Banjarmasin. (In Indonesian).
- Mataram Lestari, P., Harimurti, F., & Suharno. (2018). Pengaruh Karakteristik Perusahaan dan Sales Growth Terhadap Tax Avoidance (Studi Kasus Pada Perusahaan Manufaktur Sektor Makanan dan Minuman YangTerdaftar di BEI Tahun 2013-2016). Jurnal Akuntansi dan Sistem Teknologi Informasi, 14(4), 551-559. (In Indonesian).
- Mobarak, A. M., & Purbasari, D. P. (2006). Corrupt protection for sale to firms: Evidence from Indonesia (Working paper). University of Colorado at Boulder.
- Muzakki, M. R. (2015). Pengaruh Corporate Social Responsibility dan Capital Intensity Terhadap Penghindaran Pajak. Universitas Diponegoro, Semarang. (In Indonesian).
- Nuritomo, & Martani, D. (2014). Insentif pajak, kepemilikan, dan penghindaran pajak perusahaan (Studi penerapan peraturan pemerintah No. 81 tahun 2007). Simposium Nasional Akuntansi XVII. (In Indonesian).
- Oktavia, & Martani, D. (2013). Tingkat pengungkapan dan penggunaan derivatif keuangan dalam aktivitas penghindaran pajak. Jurnal Akuntansi dan Keuangan Indonesia, 10(2), 129-146. (In Indonesian).
- Pradipta, & Supriyadi. (2015). Pengaruh Corporate Social Responsibility (CSR), Profitabilitas, Leverage, dan Komisaris Independen Terhadap Praktik Penghindaran Pajak. Jurnal Universitas Gadjah Mada. (In Indonesian).
- Prakoso, K. B. (2014). Pengaruh Profibilitas, Kpemilikan Keluarga dan Corporate GovernanceTerhadap Penghindaran Pajak di Indonesia. Universitas Mataramm. (In Indonesian).
- Pramesthi, D. F., Suprapti, E., & Kurniawati, E. T. (2019). Income Shifting dan Pemanfaatan Negara Tax Haven. Jurnal Reviu Akuntansi dan Keuangan, 9(3), 375-386. (In Indonesian).
- Rego, S., & Wilson, R. (2012). Equity Risk Incentives and Corporate Tax Aggressiveness. Journal of Accounting Research, 50, 775-810.
- Rusydi, K., & Martani, D. (2014). Pengaruh Struktur Kepemilikan Terhadap Aggresive Tax Avoidance. Simposium Nasional Akuntansi XVII. (In Indonesian).
- Scott, W. R. (2003). Financial Accounting Theory (3rd ed.). Toronto, Ontario: Pearson Education Canada Inc.
- Shapiro, A. C. (1991). Modern Corporate Finance. New York: Macmillan Publishing Company.
- Shen, C.-H. S., & Lin, C.-Y. (2015). Political connections, financial constraint s, and corporate investment. Review of Quantitative Finance and Accounting, 47(2), 343-368.
- Sirait, N. S., & Martani, D. (2014). Pengaruh Perusahaan Keluarga Terhadap Penghindaran Pajak Pada Perusahaan Manufaktur Di Indonesia Dan Malaysia (Paper Akuntansi FEUI). (In Indonesian).
- Suprianto, E., & Dewi, A. K. (2014). Relevansi prinsip konservatism wajib pajak melakukan tax avoidance sebelum dan sesudah pelaksanaan IFRS. Simposium Nasional Akuntansi XVII. (In Indonesian).
- Watts, R. L., & Zimmerman, J. L. (1990). Positive Accounting Theory: A Ten Year Perspective. The Accounting Review, 65(1), 131-156.
- Way, M., Psychotherapies, C., History, M. L., & Learnings, S. (1992). Multinational corporations. Scandinavian International Business Review, 1(2), 70-71.
- Wijantini. (2007). A Test of The Relationship Between Political Connection And Indirect Costs of Financial Distress In Indonesia. Journal of Accounting and Finance, 3(2), 61-81.
- Wilson, R. (2009). An examination of corporate tax shelter participations. The Accounting Review, 84(3), 969-999.
-
The relationship between corporate social responsibility and earnings management: accounting for endogeneity
Hyunjung Choi , Byungchul Choi ,
Jungyoon Byun
doi: http://dx.doi.org/10.21511/imfi.15(4).2018.06
Investment Management and Financial Innovations Volume 15, 2018 Issue #4 pp. 69-84 Views: 4587 Downloads: 537 TO CITE АНОТАЦІЯThis study examines the relationship between corporate social responsibility (CSR) and earnings management after controlling for endogeneity of CSR. Using a sample of non-financial firms listed on Korean Securities Market between 2002 and 2010, this study finds that ignoring endogeneity biases the estimated relation between CSR and earnings management. Specifically, the results show that the negative and significant relation between CSR commitment and discretionary accruals reported in the previous studies becomes insignificant. However, the negative and significant relation between CSR commitment and real activities manipulation remains significant even when the endogeneity of CSR commitment is taken into account. Therefore, this study provides evidence that proactive CSR engagement significantly affects firm’s practice of real activities manipulation, while it does not affect its practice of discretionary accruals. These results indicate that CSR commitment leads managers to be more responsible in management of operational activities than in accruals management.
-
Does board composition have an impact on CSR reporting?
Patrick Velte 
doi: http://dx.doi.org/10.21511/ppm.15(2).2017.02
Problems and Perspectives in Management Volume 15, 2017 Issue #2 pp. 19-35 Views: 4455 Downloads: 1718 TO CITE АНОТАЦІЯCorporate social responsibility (CSR) reporting plays a key role in management control, particularly in light of the increased demand for non-financial reporting after the financial crisis of 2008–2009. This literature review evaluates 47 empirical studies that concentrate on the influence of several board composition variables on the quantity and quality of CSR reporting. The author briefly introduces the research framework that underpins current empirical studies in this field. This is followed by a discussion of the main variables of board composition: (1) committees (audit and CSR committees), (2) board independence, (3) board expertise, (4) CEO duality, (5) board diversity (gender and foreign diversity), (6) board activity, and (7) board size. The author, then, summarizes the key findings, discusses the limitations of the existing research and offers useful recommendations for researchers, firm practice and regulators.
-
Corporate governance and financial performance: an empirical analysis of selected multinational firms in Nigeria
Gideon Tayo Akinleye , Odunayo Olarewaju ,
Bamikole Samson Fajuyagbe
doi: http://dx.doi.org/10.21511/ppm.17(1).2019.02
Problems and Perspectives in Management Volume 17, 2019 Issue #1 pp. 11-18 Views: 3384 Downloads: 568 TO CITE АНОТАЦІЯThis study focused on corporate governance and performance of selected Nigerian multinational firms from 2012 to 2016. Specifically, the study focused on the effect of board size, activism and committee activism on return on asset and firm growth rate. Secondary data collected from four multinational firms were analyzed via static panel estimation techniques. While board size and board activism exerted significant negative impact on return on asset, committee activism exerted insignificant impact. The results of the study further showed that board size and board activism exert insignificant negative impact on firm’s growth rate, while committee activism insignificantly spurs firm’s growth rate. Decisively, discoveries from this study reflect that corporate governance has significant negative impact on return on asset, but has insignificant influence on the growth rate of Nigerian multinational firms. Based on these findings, the authors recommended that corporate governance dynamics in firms world over should be reconsidered, such that it gives credence to more than just numbers of persons or meetings held, but the main reasons and deliberations in such meetings. It was also recommended that excessive increase in magnitude or frequency of meetings held by board of directors cum committee should be avoided.
