Abstract
This study empirically examines the association of managerial ability and financial reporting quality (represented by accrual earnings management and real earnings management) on tax aggressiveness. Besides, this study employs corporate social responsibility disclosure as a moderating variable. The analysis was conducted on 44 manufacturing companies listed on the Indonesia Stock Exchange (IDX) selected through purposive sampling from 2014 up to 2019 so that 264 observations were obtained. This study uses two multiple-linear regression models with panel data. This study finds that managerial ability is negatively associated with tax aggressiveness. Meanwhile, accrual earnings management is positively associated with tax aggressiveness, while real earnings management is not associated with tax aggressiveness. The results also suggest that corporate social responsibility disclosure strengthens the negative association between managerial abilities and tax aggressiveness but fails to moderate the association between real earnings management and accrual earnings management with tax aggressiveness. This study shows that the Indonesian Tax Authority should formulate tax policies and incentives to stimulate companies to be more involved in sustainable activities and make excessive social responsibility disclosure
Highlights
A profit-oriented company aims to maximize profits (Husted & de Jesus Salazar, 2006) so that taxes are considered something that can prevent the company from achieving its goals. Landry, Deslandes, and Fortin (2013) stated that taxes are a significant business expense, and tax payments do not directly impact the payer can consider
The size of the data spread is represented by the minimum value, the maximum value, and standard deviation
Tax aggressiveness is seen as an activity with a high risk of investing in human capital managers in companies to be more reluctant to engage in high-risk tax aggressiveness activities
Summary
A profit-oriented company aims to maximize profits (Husted & de Jesus Salazar, 2006) so that taxes are considered something that can prevent the company from achieving its goals. Landry, Deslandes, and Fortin (2013) stated that taxes are a significant business expense, and tax payments do not directly impact the payer can consider. Landry, Deslandes, and Fortin (2013) stated that taxes are a significant business expense, and tax payments do not directly impact the payer can consider. The company’s efforts to reduce its tax contribution are manifested systematically in a tax planning framework by exploiting various loopholes in existing provisions or tax evasion, which tends to violate regulations (Frank, Lynch, & Rego, 2009). Previous research has linked tax aggressiveness intending to explicitly reduce taxes (Dyreng, Hanlon, & Maydew, 2008; Hanlon & Heitzman, 2010) and the use of regulatory loopholes (Dyreng et al, 2008; Lim, 2011; Butje & Tjondro, 2014). Tax aggressiveness can be defined as an activity that impacts reducing corporate tax obligations, emphasizing exploiting ambiguous areas in tax regulations
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