Political Connections, Blockholder Ownership, and Tax Avoidance: Evidence from Indonesia
Abstract
We study the effect of political connections on tax avoidance, as well as the role of blockholder ownership in moderating the effect of political connections on tax avoidance. Using panel data of 102 companies listed on the Indonesia Stock Exchange during 2016–2019, we find evidence of the positive and significant effect of political connections on tax avoidance. Political connections’ existence within the company could encourage tax avoidance. We also discover that blockholder ownership plays a role in weakening the effect of political connections on tax avoidance in Indonesia, a country with numerous companies having concentrated ownership. The higher the percentage of shares owned by the blockholder, the lower the level of tax avoidance, thus mitigating agency problem II related to entrenchment and expropriation of minority shareholders.
Keywords
Full Text:
PDFReferences
Budiardjo, M. (2007). Dasar-Dasar Ilmu Politik (Edisi Revi, Vol. 148). Gramedia Pustaka Utama.
Claessens, S., Djankov, S., Fan, J. P. H., & Lang, L. H. P. (2002). Disentangling the Incentive and Entrenchment Effects of Large Shareholdings. Journal of Finance, LVII(6), 2741–2771. https://doi.org/10.1111/1540-6261.00511
Claessens, S., Feijen, E., & Laeven, L. (2008). Political Connections and Preferential Access to Finance: The Role of Campaign Contributions. Journal of Financial Economics, 88(3), 554–580. https://doi.org/10.1016/j.jfineco.2006.11.003
Cobham, A., Garcia-Bernardo, J., Palanský, M., & Monsour, M. B. (2020). The State of Tax Justice 2020 : Tax Justice in the time of COVID-19. Tax Justice Network, November, 1–83. https://www.taxjustice.net/reports/the-state-of-tax-justice-2020/
De La Cruz, A., Medina, A., & Tang, Y. (2019). Owners of the World’s Listed Companies. OECD Capital Market Series, Paris. https://www.oecd.org/corporate/Owners-of-the-Worlds-Listed-Companies.htm
Desai, M. A., & Dharmapala, D. (2008). Tax and Corporate Governance. Tax and Corporate Governance, January 2008. https://doi.org/10.1007/978-3-540-77276-7
Dyreng, S. D., Hanlon, M., & Maydew, E. L. (2008). Long-Run Corporate Tax Avoidance. Accounting Review, 83(1), 61–82. https://doi.org/10.2308/accr.2008.83.1.61
Edmans, A. (2014). Blockholders and Corporate Governance. Annual Review of Financial Economics, 6, 23–50. https://doi.org/10.1146/annurev-financial-110613-034455
Faccio, M. (2006). Politically Connected Firms. American Economic Review, 96(1), 369–386. https://doi.org/10.1257/000282806776157704
Faccio, M. (2007). The characteristics of politically connected firms. Purdue CIBER Working Papers, 51(006), 1–34.
Ferdiawan, Y., & Firmansyah, A. (2017). Pengaruh Political Connection, Foreign Activity, dan Real Earnings Management Terhadap Tax Avoidance. Jurnal Riset Akuntansi Dan Keuangan, 5(3), 1601–1624.
Fisman, R. (2001). Estimating the Value of Political Connections. Source: The American Economic Review, 91(4), 1095–1102.
Goldman, E., Rocholl, J., & So, J. (2009). Political Connections and The Allocation of Procurement Contracts. Review of Finance, 17(5), 1–32.
Hanlon, M., & Heitzman, S. (2010). A Review of Tax Research. Journal of Accounting and Economics, 50(2–3), 127–178. https://doi.org/10.1016/j.jacceco.2010.09.002
Harymawan, I., & Nowland, J. (2016). Political connections and earnings quality: How do connected firms respond to changes in political stability and government effectiveness? International Journal of Accounting and Information Management, 24(4), 339–356. https://doi.org/10.1108/IJAIM-05-2016-0056
Houston, J. F., Jiang, L., Lin, C., & Ma, Y. (2014). Political Connections and the Cost of Bank Loans. Journal of Accounting Research, 52(1), 193–243. https://doi.org/10.1111/1475-679X.12038
Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3(4), 305–360.
Johnson, S., & Mitton, T. (2001). Cronyism and Capital Controls: Evidence From Malaysia. National Bureau of Economic Research, 8521.
Kamila, P. A. (2014). Analisis Hubungan Agresivitas Pelaporan Keuangan Dan Agresivitas Pajak Pada Saat Terjadinya Penurunan Tarif Pajak. Finance and Banking Journal, 16(2), 228–245.
Kim, C. (Francis), & Zhang, L. (2016). Corporate Political Connections and Tax Aggressiveness. Contemporary Accounting Research, 33(1), 78–114. https://doi.org/10.1111/1911-3846.12150
La Porta, R., Lopez-De-Silanes, F., & Shleifer, A. (1999). Corporate Ownership Around the World. The Journal of Finance, LIV(2), 471–517.
Leuz, C., & Oberholzer-Gee, F. (2006). Political Relationships, Global Financing and Corporate Transparency: Evidence from Indonesia. Journal of Financial Economics, 81(2), 411–439. https://doi.org/10.1016/j.jfineco.2005.06.006
Li, H., Meng, L., Wang, Q., & Zhou, L. A. (2008). Political connections, financing and firm performance: Evidence from Chinese private firms. Journal of Development Economics, 87(2), 283–299. https://doi.org/10.1016/j.jdeveco.2007.03.001
Lins, K. V., & Warnock, F. E. (2004). Corporate Governance and The Shareholder Base. International Finance Discussion Paper, 2004(816), 1–42. https://doi.org/10.17016/ifdp.2004.816
Mobarak, A. M., & Purbasari, D. P. (2006). Corrupt Protection For Sale To Firms: Evidence from Indonesia. Working Paper, May, 1–48.
Nys, E., Tarazi, A., & Trinugroho, I. (2014). Political connections, bank deposits, and formal deposit insurance. Journal of Financial Stability, 19, 83–104. https://doi.org/10.1016/j.jfs.2015.01.004
OECD. (2021). Avoidance, in OECD Glossary of Tax Terms. https://www.oecd.org/ctp/glossaryoftaxterms.htm
OJK. (2014). Roadmap Tata Kelola Perusahaan Indonesia (Indonesia Corporate Governance Roadmap). Indonesia Corporate Governance Roadmap. http://www.ojk.go.id/id/data-dan-statistik.
Pranoto, B. A., & Widagdo, A. K. (2016). Pengaruh Koneksi Politik dan Corporate Governance Terhadap Tax Agressiveness. Syariah Paper Accounting FEB UMS, 1(3), 472–486.
Putra, Z. K. P., & Suhardianto, N. (2020). The Influence of Political Connection on Tax Avoidance. Jurnal Akuntansi Dan Keuangan, 22(2), 82–90. https://doi.org/10.9744/jak.22.2.82-90
Setia-Atmaja, L., Haman, J., & Tanewski, G. (2011). The Role of Board Independence in Mitigating Agency Problem II in Australian Family Firms. British Accounting Review, 43(3), 230–246. https://doi.org/10.1016/j.bar.2011.06.006
Shleifer, A., & Vishny, R. W. (1997). A Survey of Corporate Governance Andrei. PhD Proposal, 1(2), 737–783.
Sudibyo, Y. A., & Jianfu, S. (2016). Political Connections, State Owned Enterprises and Tax Avoidance: An Evidence From Indonesia. Corporate Ownership and Control, 13(3continued2), 279–283. https://doi.org/10.22495/cocv13i3c2p2
Tang, T., & Firth, M. (2012). Earnings Persistence and Stock Market Reactions to the Different Information in Book-Tax Differences: Evidence from China. International Journal of Accounting, 47(3), 369–397. https://doi.org/10.1016/j.intacc.2012.07.004
Villalonga, B., & Amit, R. (2006). How Do Family Ownership, Control and Management Affect Firm Value? Journal of Financial Economics, 80(2), 385–417. https://doi.org/10.1016/j.jfineco.2004.12.005
Watts, R. L., & Zimmerman, J. L. (1978). Towards a Positive Theory of the Determination of Accounting Standards. Source: The Accounting Review, 53(1), 112–134. http://www.jstor.org/stable/245729%0Ahttp://about.jstor.org/terms
Wu, W., Wu, C., Zhou, C., & Wu, J. (2012). Political connections, tax benefits and firm performance: Evidence from China. Journal of Accounting and Public Policy, 31(3), 277–300. https://doi.org/10.1016/j.jaccpubpol.2011.10.005
Ying, T., Wright, B., & Huang, W. (2017). Ownership Structure and Tax Aggressiveness of Chinese Listed Companies. International Journal of Accounting & Information Management. https://doi.org/10.1108/IJAIM-07-2016-0070
Zhang, H., Jian, M., & Li, W. (2012). How does state ownership affect tax avoidance? Evidence from China. School of Accountancy: Singapore Management University, 13–18.
DOI: https://doi.org/10.33258/birci.v5i2.4897
Article Metrics
Abstract view : 122 timesPDF - 43 times
Refbacks
- There are currently no refbacks.
![Creative Commons License](http://licensebuttons.net/l/by-sa/4.0/88x31.png)
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
![Creative Commons License](https://i.creativecommons.org/l/by-sa/4.0/88x31.png)
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.