Role of Audit Committee in Tax Avoidance of Family and Non-Family Firms: Evidence from Indonesia

Abstract

Companies often use tax avoidance and cost of debt substitutionally to achieve the desired marginal tax rate, without attracting the attention of the Tax Department of the State. We examine the role of the audit committee in supervising and reducing the trade-off practices of 222 public companies with 1.101 observations in Indonesia from 2011 � 2015 (before the tax amnesty program in 2016). We also examine the structure of company ownership (family and non-family firms) determines the effectiveness of the role of the audit committee in reducing the trade-off between tax avoidance and cost of debt. Data were analyzed using multiple regression data panel with pooled least square. Proxy of tax avoidance in this study uses Lim (2011), while the indicator of the audit committee uses the proportion of the audit committee compared to the number boards of commissioners, in dummy variable. The results suggest that the role of the audit committee is moderated the trade-off between tax avoidance and cost of debt, but in a contrary way. The role of the audit committee is not proved to reduce the trade-off practices, on the contrary increase the cost of debt which can result in reducing tax payments and increasing tax risks. After the advanced analysis, we found evidence that the role of the audit committee is stronger in non-family firms than in family firms. The moderation effect of audit committee found not significant in family companies, though have a significant effect on non-family companies.