Impact of Debt-Equity-Ratio Regulation and Foreign Ownership on Tax Avoidance: The Moderating Role of Profitability in Indonesian Public Companies
Year: 2025
Type: article
Abstract: This study examines the impact of debt-to-equity ratio (DER) regulation and foreign ownership on tax avoidance in Indonesian public companies, with profitability acting as a moderating variable. The sample includes companies listed on the Indonesia Stock Exchange that reported positive pre-tax and net income from 2011 to 2020. Using purposive sampling, the final dataset comprises 104 companies across six industrial sectors, averaged annually by sector, resulting in 60 data points. Data analysis was conducted using SPSS version 24. Findings reveal that DER regulation has a negative impact on tax avoidance, suggesting that higher DER values lead to greater creditor scrutiny, thus discouraging tax avoidance. This trend held consistent before and after the implementation of regulation PMK-169/2015. Conversely, foreign ownership positively influences tax avoidance, indicating that companies with higher foreign ownership levels tend to adopt tax avoidance strategies. Profitability, however, negatively moderates the foreign ownership-tax avoidance relationship, indicating that more profitable firms are less likely to engage in aggressive tax avoidance. This study underscores the importance of DER regulation in limiting tax avoidance and highlights profitability as a factor reducing tax avoidance in foreign-owned companies. Limitations include the study’s focus on six industry sectors and annual data, which may overlook intra-year variations. Future research could expand the scope by including additional sectors and quarterly data to capture short-term tax strategies, and by examining other moderating factors, such as firm size and market competitiveness.
Author: Terry Octaryno
Institution: University of Indonesia
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W4409655475