The influence of financial distress and good corporate governance on tax avoidance

Abstract

Purpose: This study examines the impact of financial distress, institutional ownership, managerial ownership, independent board of commissioners, board size, and audit committee on tax avoidance in multiple industrial sector companies listed on the Indonesian Stock Exchange from 2015 to 2019.

Methods: This research employs a quantitative associative strategy, focusing on various industrial sector companies listed on the Indonesia Stock Exchange. The sample comprises nine companies selected through purposive sampling, totaling 45 observations. Data were collected from secondary sources via the IDX and IDN Financials websites and analyzed using Eviews version 9, including classical assumption tests and multiple linear regression analysis.

Findings: The study findings reveal that: 1. Financial distress positively influences tax avoidance. 2. Institutional ownership positively affects tax avoidance. 3. Managerial ownership positively impacts tax avoidance. 4. Independent board of commissioners does not affect tax avoidance. 5. Board size has no impact on tax avoidance.  6. The audit committee positively influences tax avoidance.

Practical Implications: The findings highlight the need to tackle financial distress driving tax avoidance. Stakeholders should improve financial planning to prevent misallocation. Institutional and managerial ownership influence tax strategies, requiring governance evaluations. While board size is not significantly related to tax avoidance, ongoing assessment of governance practices and audit committees is crucial for effective oversight.