Are CEO Overconfidence and Audit Firm Size Related To Tax Avoidance?

Abstract

Objective – This study aims to examine whether audit firm size mitigates the relationship between CEO overconfidence and tax avoidance. CEO overconfidence has the characteristics of a very high level of self-confidence which influences the pattern of thought and the way they make strategic decisions. CEO overconfidence has a tendency to avoid taxes. It aims to show competence in tax management and raise funds for investment. External party oversight, such as by audit firms, will mitigate the relationship between CEO overconfidence and tax avoidance through an attitude of independence, as well as competence and function as examiners of the company's financial reporting. Methodology/Technique – This study uses a sample of Indonesian non-financial companies in the period 2013-2017. This study analyses the data with statistical methods using linear multiple regression. Findings – The results of this study indicate that CEO overconfidence is positively related to tax avoidance, while audit firm size is negatively related to tax avoidance. However, this study has not been able to prove the influence of audit firm size on the relationship between CEO overconfidence and tax avoidance. Type of Paper: Empirical Keywords: CEO overconfidence; Tax Avoidance; Audit Firm Size; Big 4; Book Tax Difference. Reference to this paper should be made as follows: Sutrisno, P; Pirzada, K. 2020. Are CEO Overconfidence and Audit Firm Size Related To Tax Avoidance?, Acc. Fin. Review 5(2): 72 – 81. https://doi.org/10.35609/afr.2020.5.2(3) JEL Classification: M41, M49.