Abstract
This study aims to examine does independence of the Board of Commissioner (BOC) is still relevant as a corporate governance mechanism regarding monitoring managers’ activity, such as aggressive in financial reporting and tax avoidance during financial distress condition. The focus of this study is listed companies on the Indonesia Stock Exchange (IDX), particularly on Mining and Consumer Good Industry sector for period 2016 until 2018. Using multiple linear regression analysis, this study documents that Independency of board commissioner has significant effect on manager’s activity in avoiding tax, however this study failed to document that independency moderates the effect of financial distress and financial reporting aggressiveness on tax avoidance. In addition, this study find that financial distress and financial re-porting aggressiveness positively affect tax avoidance. This study contributes on two ways, first, it adds empirical evidence regarding the relevancy of board of commissioner’s independency as a measure of corporate governance mechanism to monitor managers’ activities in avoiding tax. Second, it also adds evidence that independence is unable to moderates the effect of financial distress and financial reporting aggressiveness on tax avoidance activities performed by managers. In brief, this study implies that the independence of BoC, solely as a measure of corporate governance mechanism is less relevant in a current situation especially when the company facing financial distress conditions and managers’ aggressiveness in financial reporting. Managers should more pay attention to the discretion of tax avoidance activities particularly when facing financial distress condition. The results also imply that regulatory bodies, for instance, Stock Exchange Supervisory Board under the Indonesian Financial Services Authority should reconsider or reformation the concept of independence of Board Commissioners.
Highlights
Corporate governance has become crucial attention of business since Sarbanes Ox-ley’s Act in 2002 released
Other literatures showed that independency of board commissioner (BOC) is insufficient to measure monitoring mechanism, to be more effective, corporate governance should be measured using more than one indicator such as competencies, BOC activities, etc. (Arieftiara et al, 2020; Hermawan, 2011)
This study focuses to investigates Does the BOC’s independency as an indicator of corporate governance mechanism still relevance, primarily in monitors manag-ers’ activities regarding financial reporting aggressiveness and tax avoidance when compa-nies facing financial distress condition? This study contributes on two ways, first, it adds empirical evidence regarding the relevancy of board of commissioner’s independency as a measure of corporate governance mechanism to monitor managers’ activities in avoiding tax
Summary
Corporate governance has become crucial attention of business since Sarbanes Ox-ley’s Act in 2002 released. As other emerging countries, has regulation regarding corporate governance mechanism with regard to mitigate effect of weak shareholders legal protection. Arieftiara & Utama (2018), Sun et al (2014), Gani & Jermias (2006) has ex-plored that independency of board commissioner (BOC) contributes on effective monitoring mechanism of managers activities significantly. Other literatures showed that independency of BOC is insufficient to measure monitoring mechanism, to be more effective, corporate governance should be measured using more than one indicator such as competencies, BOC activities, etc. Tax revenue target is increasing in 5 current years, yet the realization shows fluctuate.
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More From: International Journal of Research in Business and Social Science (2147- 4478)
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