Purposive Sampling Technique and Ordinary Least Square Analysis: Investigating the Relationship Between Managerial Overconfidence, Transfer Pricing and Tax Management in Indonesian Stock Exchange-Listed Firms

Abstract

Objective: This study investigates the relationship between managerial overconfidence, transfer pricing, and tax risk, with a focus on tax management's moderating role. Theoretical framework: Tax management is a critical concern due to its pivotal role in financing government activities. Low tax revenues in industries like manufacturing can adversely affect these activities, highlighting the need for effective tax management strategies. Managerial overconfidence can influence these strategies, potentially leading to positive and negative impacts on tax management. Method: Population of this study was manufacturing companies listed in Indonesia Stock Exchange in 2014-2019 period. The analysis made from 2015-2019, while 2014 was used as the basis to estimate the sales and asset growth as the proxy of managerial overconfidence. The sample of this study was selected using purposive sampling technique with the following criteria, manufacturing companies listed in IDX in 2014-2019 period, the company should have at least five companies in sub sector to estimate the managerial overconfidence per subsector to obtain data variation. Results and conclusion: Findings indicate a significant relationship between managerial overconfidence and tax management, with managers demonstrating overconfidence tending to employ aggressive tax management strategies, thus minimizing tax payments. Furthermore, this study reveals inconsistencies in the research surrounding overconfidence's impact on tax management, necessitating further exploration. Implications of the research: These results have implications for understanding the role of managerial traits in the decision-making process and developing effective tax management strategies to maximize government revenue. Originality/Value: The present study confirms the agency theory's efficiency perspective, stating that overconfident managers may minimize tax management practice due to risk contingency or because they consider the long-term benefit cost. Overconfident managers are viewed as more effective in taking advantage of the growth potential, allowing them to enhance the organization's performance instead of minimizing tax payment that contains risk contingency.