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Does board of commissioners independence still relevant in tax avoidance monitoring?

Author

Listed:
  • Imam Alhady

    (Universitas Pembangunan Nasional Veteran Jakarta)

  • Imam Alhady

    (Universitas Pembangunan Nasional Veteran Jakarta)

  • Imam Alhady

    (Universitas Pembangunan Nasional Veteran Jakarta)

Abstract

This study aims to examine does independence of the Board of Commissioner (BOC) is still relevant as a corporate governance mechanism regarding monitoring managers’ activity, such as aggressive in financial reporting and tax avoidance during financial distress condition. The focus of this study is listed companies on the Indonesia Stock Exchange (IDX), particularly on Mining and Consumer Good Industry sector for period 2016 until 2018. Using multiple linear regression analysis, this study documents that Independency of board commissioner has significant effect on manager’s activity in avoiding tax, however this study failed to document that independency moderates the effect of financial distress and financial reporting aggressiveness on tax avoidance. In addition, this study find that financial distress and financial re-porting aggressiveness positively affect tax avoidance. This study contributes on two ways, first, it adds empirical evidence regarding the relevancy of board of commissioner’s independency as a measure of corporate governance mechanism to monitor managers’ activities in avoiding tax. Second, it also adds evidence that independence is unable to moderates the effect of financial distress and financial reporting aggressiveness on tax avoidance activities performed by managers. In brief, this study implies that the independence of BoC, solely as a measure of corporate governance mechanism is less relevant in a current situation especially when the company facing financial distress conditions and managers’ aggressiveness in financial reporting. Managers should more pay attention to the discretion of tax avoidance activities particularly when facing financial distress condition. The results also imply that regulatory bodies, for instance, Stock Exchange Supervisory Board under the Indonesian Financial Services Authority should reconsider or reformation the concept of independence of Board Commissioners. Key Words:Independency, Board of Commissioner, Financial Distress, Financial Reporting Aggressiveness, Tax Avoidance

Suggested Citation

  • Imam Alhady & Imam Alhady & Imam Alhady, 2021. "Does board of commissioners independence still relevant in tax avoidance monitoring?," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(5), pages 148-156, July.
    • Handle: RePEc:rbs:ijbrss:v:10:y:2021:i:5:p:148-156
    DOI: 10.20525/ijrbs.v10i5.1263
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    References listed on IDEAS

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    1. Armstrong, Christopher S. & Blouin, Jennifer L. & Jagolinzer, Alan D. & Larcker, David F., 2015. "Corporate Governance, Incentives, and Tax Avoidance," Research Papers 2134, Stanford University, Graduate School of Business.
    2. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    3. Edward I. Altman, 1968. "The Prediction Of Corporate Bankruptcy: A Discriminant Analysis," Journal of Finance, American Finance Association, vol. 23(1), pages 193-194, March.
    4. Armstrong, Christopher S. & Blouin, Jennifer L. & Jagolinzer, Alan D. & Larcker, David F., 2015. "Corporate governance, incentives, and tax avoidance," Journal of Accounting and Economics, Elsevier, vol. 60(1), pages 1-17.
    Full references (including those not matched with items on IDEAS)

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