The mediating role of financial reporting aggressiveness in corporate tax avoidance strategies

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Tax avoidance, often driven by managerial discretion, remains a critical issue in corporate governance due to its implications for financial transparency and regulatory compliance. This study investigates how Transfer Pricing, Thin Capitalization, Leverage, and CSR Disclosure – strategies employed by managers – affect Tax Avoidance and examines the mediating role of Financial Reporting Aggressiveness. Grounded in agency theory, the study analyzes data from 20 firms listed on the Indonesian Stock Exchange from 2019 to 2023 using PLS-SEM. The findings reveal that Transfer Pricing (β = 0.062, p = 0.002), Leverage (β = 0.046, p < 0.001), and CSR Disclosure (β = 0.061, p < 0.001) significantly increase Tax Avoidance, with Financial Reporting Aggressiveness acting as a mediator. However, Thin Capitalization does not significantly influence Tax Avoidance (β = 0.028, p = 0.422). These results suggest that managers exploit these mechanisms to minimize tax burdens, often at the cost of long-term shareholder interests. The study calls for stronger corporate governance and stricter oversight of CSR reporting and financial transparency to mitigate such practices.

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    • Figure 1. PLS-SEM analysis
    • Table 1. Operational definition and measurement of variables
    • Table 2. Descriptive statistics
    • Table 3. Measurement model results
    • Table 4. Model fit indices
    • Table 5. Path coefficients and p-values
    • Table 6. Mediation effect results
    • Conceptualization
      Andi Kusumawati, Chamdun Mahmudi, Suhanda Suhanda, Andi Iqra Pradipta Natsir, Fakhrul Indra Hermansyah, Muhammad Try Dharsana, Rianda Ridho Hafizh Thaha
    • Data curation
      Andi Kusumawati, Chamdun Mahmudi, Suhanda Suhanda, Fakhrul Indra Hermansyah, Muhammad Try Dharsana, Rianda Ridho Hafizh Thaha
    • Formal Analysis
      Andi Kusumawati, Chamdun Mahmudi, Suhanda Suhanda, Andi Iqra Pradipta Natsir, Fakhrul Indra Hermansyah, Muhammad Try Dharsana, Rianda Ridho Hafizh Thaha
    • Funding acquisition
      Andi Kusumawati, Suhanda Suhanda, Andi Iqra Pradipta Natsir
    • Investigation
      Andi Kusumawati, Andi Iqra Pradipta Natsir, Fakhrul Indra Hermansyah, Muhammad Try Dharsana, Rianda Ridho Hafizh Thaha
    • Methodology
      Andi Kusumawati, Chamdun Mahmudi, Suhanda Suhanda, Fakhrul Indra Hermansyah, Muhammad Try Dharsana, Rianda Ridho Hafizh Thaha
    • Project administration
      Andi Kusumawati, Chamdun Mahmudi, Suhanda Suhanda, Andi Iqra Pradipta Natsir, Fakhrul Indra Hermansyah, Muhammad Try Dharsana
    • Resources
      Andi Kusumawati, Chamdun Mahmudi, Fakhrul Indra Hermansyah
    • Software
      Andi Kusumawati, Chamdun Mahmudi, Andi Iqra Pradipta Natsir, Fakhrul Indra Hermansyah, Rianda Ridho Hafizh Thaha
    • Supervision
      Andi Kusumawati, Suhanda Suhanda, Andi Iqra Pradipta Natsir, Rianda Ridho Hafizh Thaha
    • Validation
      Andi Kusumawati, Chamdun Mahmudi, Suhanda Suhanda, Andi Iqra Pradipta Natsir, Fakhrul Indra Hermansyah, Muhammad Try Dharsana, Rianda Ridho Hafizh Thaha
    • Writing – original draft
      Andi Kusumawati, Chamdun Mahmudi, Andi Iqra Pradipta Natsir, Fakhrul Indra Hermansyah, Muhammad Try Dharsana, Rianda Ridho Hafizh Thaha
    • Writing – review & editing
      Andi Kusumawati, Suhanda Suhanda, Fakhrul Indra Hermansyah, Rianda Ridho Hafizh Thaha
    • Visualization
      Chamdun Mahmudi