Abstract
Increasing the concentration of ownership and control of public companies in Indonesia is more likely to increase the likelihood of earnings management practices through tax avoidance. The high percentage of concentrated ownership has encouraged the government and capital market regulators to more broadly promote regulations related to tax incentives and public ownership in order to encourage more transparent practices. This study aims to analyze the policy of public ownership of tax avoidance conducted by Indonesian public companies, specifically after the regulation of Government Regulation No. 81 of 2007 concerning Reduction of Income Tax Rates for Domestic Corporate Taxpayers in the Form of Public Companies, and Minister of Financial Regulation No. 238 / PMK.03 / 2008 concerning Procedures for Implementing and Supervision of Granting Tariff Reductions for Domestic Corporate Taxpayers in the Form of Public Companies. More specifically, this study aims to analyze the impact of public share ownership on tax avoidance by Indonesian public companies. The samples of 320 observations that conducted (firm-years) during 2008-2011. The software that will be used in data analysis is STATA 12. The results showed that the increase in public ownership have a significant effect in improve the practice of corporate tax avoidance, which it is also evidenced by the significant differences in the corporate tax avoidance practices before than after the enactment of these regulations. The findings show that the greater the proportion of public share ownership would result the decreasing number of ETR or ETRC which can be indicated that the greater the practice of corporate tax avoidance. Furthermore, the ROA variable has a negative and significant effect on corporate tax avoidance practices, meaning that the greater the profitability ratio of a company can cause the reported and paid tax burden to decrease.
Highlights
The separation of ownership and control in complex organizations can result in greater agency problems along with the separation of management decision-making and the scope of risk to the public
The two research models showed the same results, namely with the negative coefficient (-0.0588 in the effective tax rate (ETR) model and -0.0985 in the ETR Cash model) it could be interpreted that the greater the proportion of public share ownership would result the number of ETR or ETRC is decreasing, in other words the company will report the tax burden or pay lower taxes, which can be indicated that the greater the practice of corporate tax avoidance
The size of the company variable (Size) was found to only have a negative and significant effect on the ETR model, this means that an increase in company size only affects the smaller tax reported by the company
Summary
The separation of ownership and control in complex organizations can result in greater agency problems along with the separation of management decision-making and the scope of risk to the public. Several empirical studies show that companies listed in the Indonesian capital market have ownership structures that tend to be concentrated in one or several shareholders (Claessens et al, 2000; Siregar & Utama, 2008); Sari & Martani, 2010; Wiranata & Nugrahanti, 2013). The concentration of family ownership was later found to be related to earnings management behavior in the company. Siregar and Utama (2007) found that companies with high family ownership and not in a particular business group network performs efficient earnings management and does not appear to be detrimental to minority shareholders
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