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The Effect of Public Share Ownership on Tax Evasion: Study on Companies Listed in Indonesia Stock Exchange Between 2008-2011

Author

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  • Muhammad Ikbal Abdullah
  • Andi Chairil Furqan
  • Ni Made Suwitri Parwati
  • Asmanurhidayani

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.

Suggested Citation

  • Muhammad Ikbal Abdullah & Andi Chairil Furqan & Ni Made Suwitri Parwati & Asmanurhidayani, 2019. "The Effect of Public Share Ownership on Tax Evasion: Study on Companies Listed in Indonesia Stock Exchange Between 2008-2011," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(6), pages 124-132, October.
    • Handle: RePEc:jfr:ijfr11:v:10:y:2019:i:6:p:124-132
    DOI: 10.5430/ijfr.v10n6p124
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    References listed on IDEAS

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    1. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    2. Gupta, Sanjay & Newberry, Kaye, 1997. "Determinants of the variability in corporate effective tax rates: Evidence from longitudinal data," Journal of Accounting and Public Policy, Elsevier, vol. 16(1), pages 1-34.
    3. Hanlon, Michelle & Heitzman, Shane, 2010. "A review of tax research," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 127-178, December.
    4. Huseynov, Fariz & Klamm, Bonnie K., 2012. "Tax avoidance, tax management and corporate social responsibility," Journal of Corporate Finance, Elsevier, vol. 18(4), pages 804-827.
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    Cited by:

    1. Frans Sudirjo, 2020. "Management Compensation, Gender Diversification, and Executive Preferences on Tax Avoidance of IDX Manufacturing Companies," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(1), pages 373-380, January.

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