Reviews of Public Policies and Strategies to Promote the Adoption of Sustainable Development Goals (Sdgs): The Case of Financial Performance and Effective Tax Rate

Abstract

Objective: This research explores the role of tax avoidance as a legal strategy within the bounds of SDGs and public policy frameworks. Theoretical Framework: The theoretical framework of the research is based on two key theories: agency theory and legitimacy theory. This framework is essential to explain the relationship between tax avoidance, sustainability reporting, and financial performance in the context of Sustainable Development Goals (SDGs). Method: The study employs a quantitative approach using secondary data collected from the financial and sustainability reports of public companies listed on the Indonesia Stock Exchange (IDX) from 2018 to 2022. A sample of 68 companies was selected, based on specific criteria such as consistent sustainability reporting and having an effective tax rate within a reasonable range. Ordinary Least Squares (OLS) regression analysis was applied to test hypotheses about the relationships between sustainability reporting, tax avoidance, and financial performance. Results and Discussion: The study found that sustainability reporting does not directly correlate with financial performance but is mediated by tax avoidance. Tax avoidance positively impacts financial performance in the short term, suggesting that companies benefit financially from sustainability practices when coupled with legal tax avoidance strategies. However, such practices could pose long-term risks in terms of public trust and alignment with Sustainable Development Goals (SDGs). Research Implications: The findings highlight the critical mediating role of tax avoidance between sustainability reporting and financial performance, providing insights into how public policies, particularly tax incentives, can be designed to promote the SDGs. The research also underscores the need for stronger regulatory frameworks to ensure that sustainability reporting contributes meaningfully to both corporate transparency and global sustainability efforts. Originality/Value: This research offers a novel perspective by exploring the interactions between sustainability reporting, tax avoidance, and financial performance in the context of the SDGs. It provides empirical evidence on the potential for tax strategies to mediate the effects of sustainability practices, contributing to the growing body of literature on corporate social responsibility and financial performance.