Moderation of Financial Constraints in Transfer Pricing Aggressiveness, Income Smoothing, and Managerial Ability to Avoid Taxation
Abstract
This study examines the effect of transfer pricing aggressiveness, income smoothing, and managerial ability in tax avoidance with financial constraints as a moderating variable. The samples were manufacturing companies listed on the Indonesia Stock Exchange in 2015 to 2018. The study analyzed a form of panel data with a fixed-effect model approach. The result was transfer pricing aggressiveness and income smoothing had positives effects on tax avoidance. Managerial ability reduces tax avoidance, while financial constraints did not. Furthermore, financial constraints did not moderate the effects of transfer pricing aggressiveness on tax avoidance. Financial constraints strengthened the positive effects of income smoothing and the negative effects of managerial ability on tax avoidance. This study provides input to the tax authorities in formulating policies, as well as input for risk analysis on tax potential.
Keywords: transfer pricing aggressiveness, income smoothing, managerial ability, financial constraints, tax avoidance.
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References
Akbari, F., Salehi, M., & Bagherpour Vlashani, M. A. (2019). The relationship between tax avoidance and firm value with income smoothing: A comparison between classical and Bayesian econometric in multilevel models. International Journal of Organizational Analysis, 27(1), 125–148. https://doi.org/10.1108/IJOA-09-2017-1235
Alm, J., Liu, Y., & Zhang, K. (2019). Financial constraints and firm tax evasion. International Tax and Public Finance, 26(1), 71–102. https://doi.org/10.1007/s10797-018-9502-7
Amidu, M., Coffie, W., & Acquah, P. (2019). Transfer Pricing, Earnings Management, and Tax Avoidance of firms in Ghana. Journal of Financial Crime, 26(1), 235-259. https://doi.org/10.1108/JFC-10-2017-0091
Azka, R. M. (2018). IMF: Risiko Arus Modal Keluar di Negara Berkembang Menjadi Lebih Besar. ekonomi.bisnis.com.
Bank Indonesia. (2009). Tujuan Kebijakan Moneter. www.bi.go.id.
Bartelsman, E. J., & Beetsma, R. M. W. J. (2003). Why pay more? Corporate tax avoidance through transfer pricing in OECD countries. Journal of Public Economics, 87(9–10), 2225–2252. https://doi.org/10.1016/S0047-2727(02)00018-X
Bayar, O., Huseynov, F., & Sardarli, S. (2018). Corporate Governance, Tax Avoidance, and Financial Constraints. Financial Management, 47(3), 651–677. https://doi.org/10.1111/fima.12208
Borkowski, S. C. (2010). Transfer pricing practices of transnational corporations in PATA countries. Journal of International Accounting, Auditing and Taxation, 19(1), 35–54. https://doi.org/10.1016/j.intaccaudtax.2009.12.003
Chen, C., & Lai, S. (2012). Financial Constraint and Tax Aggressiveness. Working Paper, University of Auckland, 1–41.
Chen, S., Chen, X., Cheng, Q., & Shevlin, T. (2010). Are family firms more tax aggressive than non-family firms? Journal of Financial Economics, 95(1), 41-61. https://doi.org/10.1016/j.jfineco.2009.02.003
Ciconte, W., Donohoe, M. P., Lisowsky, P., & Mayberry, M. A. (2014). Predictable Uncertainty: The Relation between Unrecognized Tax Benefits and Future Income Tax Cash Outflows. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2390150
Cobham, A. (2005). Tax evasion, tax avoidance and development finance. QEH Working Paper Series, 129(129), 1–20.
Demerjian, P. R., Lewis, M. F., Lev, B. I., & McVay, S. E. (2012). Managerial Ability and Earnings Quality. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1650309
Desai, M. A., & Dharmapala, D. (2009). Earnings management, corporate tax shelters, and book-tax alignment. National Tax Journal, 62(1), 169-186.
Desai, M. A., & Dharmapala, D. (2006). Corporate tax avoidance and high-powered incentives. Journal of Financial Economics, 79(1), 145–179. https://doi.org/10.1016/j.jfineco.2005.02.002
Dharmapala, D. (2008). What problems and opportunities are created by tax havens. Oxford Review of Economic Policy, 24(4), 661–679. https://doi.org/10.1093/oxrep/grn031
Dyreng, S. D., Hanlon, M., & Maydew, E. L. (2008). Long-Run Corporate Tax Avoidance. The Accounting Review, 83(1), 61–82.
Eckel, N. (1981). Smoothing Hypothesis Revisited. Abacus, 17(1), 28–40. https://doi.org/10.1111/j.1467-6281.1981.tb00099.x
Edwards, A. S., Schwab, C., & Shevlin, T. J. (2012). Financial Constraints and the Incentive for Tax Planning. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2163766
Edwards, A., Schwab, C., & Shevlin, T. (2016). Financial constraints and cash tax savings. Accounting Review, 91(3), 859–881. https://doi.org/10.2308/accr-51282
Erickson, M., Hanlon, M., & Maydew, E. L. (2005). How Much Will Firms Pay for Earnings That Do Not Exist? Evidence of Taxes Paid on Allegedly Fraudulent Earnings. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.347420
Falbo, T. D., & Firmansyah, A. (2018). Thin Capitalization, Transfer Pricing Aggresiveness, Penghindaran Pajak. Indonesian Journal of Accounting and Governance, 2(1), 1–28. https://doi.org/10.36766/ijag.v2i1.6
Firmansyah, A., & Bayuaji, R. (2019). Financial constraints, investment opportunity set, financial reporting aggressiveness, tax aggressiveness: Evidence from indonesia manufacturing companies. Academy of Accounting and Financial Studies Journal, 23(5), 1–18.
Fonseca, A. R., & González, F. (2008). Cross-country determinants of bank income smoothing by managing loan-loss provisions. Journal of Banking and Finance, 32(2), 217–228. https://doi.org/10.1016/j.jbankfin.2007.02.012
Francis, B., Sun, X., & Wu, Q. (2013). Managerial Ability and Tax Avoidance. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2348695
Frank, M. margaret, Lynch, L. J., & Rego, S. O. (2009). Tax Reporting Aggressiveness and Its Relation Financial Reporting University of Virginia. Accounting Review, 84(2), 467–496. https://doi.org/10.2308/accr.2009.84.2.467
Graham, J. R., Harvey, C. R., & Shiva Rajgopal. (2005). The economic implications of corporate financial reporting. Journal of Accounting and Economics, 40(1–3), 3–73. https://doi.org/10.1016/j.jacceco.2005.01.002
Gravelle, J. G. (2009). Tax havens: International tax avoidance and evasion. National Tax Journal, 62(4), 727-753.
Grubert, H., & Mutti, J. (1991). Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making. The Review of Economics and Statistics, 73(2), 285. https://doi.org/10.2307/2109519
Handayani, D., Andreas, & Fitrios, R. (2013). Pengaruh Kecakapan Manajerial , Set Kesempatan Investasi dan Kepemilikan Pemerintah Terhadap Tarif Pajak Efektif. Simposium Nasional Akuntansi XVI Manado, 6(September 2013), 2532–2562.
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
Hanlon, M., & Slemrod, J. (2009). What does tax aggressiveness signal? Evidence from stock price reactions to news about tax shelter involvement. Journal of Public economics, 93(1-2), 126-141. https://doi.org/10.1016/j.jpubeco.2008.09.004
Healy, P. M., & Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13 (4)(November), 365–383. https://doi.org/10.2308/acch.1999.13.4.365
Huang, P., Zhang, Y., Deis, D. R., & Moffitt, J. S. (2009). Do artificial income smoothing and real income smoothing contribute to firm value equivalently? Journal of Banking and Finance, 33(2), 224–233. https://doi.org/10.1016/j.jbankfin.2008.07.012
Janský, P., Prats, A., & Aid, C. (2013). Multinational corporations and the profit-shifting lure of tax havens. Christian Aid Occasional Paper, 9(9), 15.
Jihad Akbar. (2020). Tentang Resesi Ekonomi dan yang Harus Dipersiapkan. Kompas, 5 Agustus 2020.
Kang, J. Y., & Ko, J. K. (2014). Tax avoidance, firm value and corporate governance. Korean Accounting Review, 39(1), 147–189.
Koester, A., Shevlin, T., & Wangerin, D. (2017). The role of managerial ability in corporate tax avoidance. Management Science, 63(10), 3285–3310. https://doi.org/10.1287/mnsc.2016.2510
Mahdavi, G. H., & Saberi, M. (2016). Managerial ability and financial constraints (using data envelopment analysis). Quarterly Financial Accounting, 8(31), 51-73.
Martani, D., & Kamila, P. A. (2014). Analisis Hubungan Agresivitas Pelaporan Keuangan dan Agresivitas Pajak. Simposium Nasional Akuntansi XVII. Lombok, 24–27.
Media Keuangan. (2019). Meningkatkan Rasio Pajak. Jakarta: Kementerian Keuangan.
Olibe, K. O., & Rezaee, Z. (2008). Income shifting and corporate taxation: the role of cross‐border intrafirm transfers. Review of Accounting and Finance, 7(1), 83–101. https://doi.org/10.1108/14757700810853860
Panjalusman, P. A., Nugraha, E., & Setiawan, A. (2018). Pengaruh Transfer Pricing Terhadap Penghindaran Pajak. Jurnal Pendidikan Akuntansi & Keuangan, 6(2), 105. https://doi.org/10.17509/jpak.v6i2.15916
Park, J., Ko, C. Y., Jung, H., & Lee, Y. S. (2016). Managerial ability and tax avoidance: evidence from Korea. Asia-Pacific Journal of Accounting and Economics, 23(4), 449–477. https://doi.org/10.1080/16081625.2015.1017590
Pendse, S. J. (2012). International Transfer Pricing: A Review of Non-Tax Outlook. Procedia - Social and Behavioral Sciences, 37, 337–343. https://doi.org/10.1016/j.sbspro.2012.03.299
Plesner Rossing, C., & Rohde, C. (2014). Transfer pricing: aligning the research agenda to organizational reality. Journal of Accounting & Organizational Change, 10(3), 266–287. https://doi.org/10.1108/JAOC-03-2012-0017
Rego, S. O. (2005). Tax Avoidance Activities of U.S. Multinational Corporations. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.320343
Richardson, G., & Lanis, R. (2007). Determinants of the variability in corporate effective tax rates and tax reform: Evidence from Australia. Journal of Accounting and Public Policy, 26(6), 689–704. https://doi.org/10.1016/j.jaccpubpol.2007.10.003
Richardson, G., Taylor, G., & Lanis, R. (2013). Determinants of transfer pricing aggressiveness: Empirical evidence from Australian firms. Journal of Contemporary Accounting & Economics, 9(2), 136–150. https://doi.org/10.1016/j.jcae.2013.06.002
Slemrod, J. (2007). Cheating Ourselves : The Economics of Slemrod, J. (2007). Cheating Ourselves : The Economics of Tax Evasion. Tax Evasion. Journal of Economic Perspectives, 21(1), 25–48. https://doi.org/10.1257/jep.21.1.25
Taylor, G., & Richardson, G. (2012). International Corporate Tax Avoidance Practices: Evidence from Australian Firms. International Journal of Accounting, 47(4), 469–496. https://doi.org/10.1016/j.intacc.2012.10.004
Taylor, G., & Richardson, G. (2014). Incentives for corporate tax planning and reporting: Empirical evidence from Australia. Journal of Contemporary Accounting and Economics, 10(1), 1–15. https://doi.org/10.1016/j.jcae.2013.11.003
Wang, S. dan Chen, S. (2012). The Motivation for Tax Avoidance in Earnings Management. International Conference on Engineering and Business Management, 447–450.
Whited, T. M., & Wu, G. (2006). Financial constraints risk. Review of Financial Studies, 19(2), 531–559. https://doi.org/10.1093/rfs/hhj012
Alm, J., Liu, Y., & Zhang, K. (2019). Financial constraints and firm tax evasion. International Tax and Public Finance, 26(1), 71–102. https://doi.org/10.1007/s10797-018-9502-7
Amidu, M., Coffie, W., & Acquah, P. (2019). Transfer Pricing, Earnings Management, and Tax Avoidance of firms in Ghana. Journal of Financial Crime, 26(1), 235-259. https://doi.org/10.1108/JFC-10-2017-0091
Azka, R. M. (2018). IMF: Risiko Arus Modal Keluar di Negara Berkembang Menjadi Lebih Besar. ekonomi.bisnis.com.
Bank Indonesia. (2009). Tujuan Kebijakan Moneter. www.bi.go.id.
Bartelsman, E. J., & Beetsma, R. M. W. J. (2003). Why pay more? Corporate tax avoidance through transfer pricing in OECD countries. Journal of Public Economics, 87(9–10), 2225–2252. https://doi.org/10.1016/S0047-2727(02)00018-X
Bayar, O., Huseynov, F., & Sardarli, S. (2018). Corporate Governance, Tax Avoidance, and Financial Constraints. Financial Management, 47(3), 651–677. https://doi.org/10.1111/fima.12208
Borkowski, S. C. (2010). Transfer pricing practices of transnational corporations in PATA countries. Journal of International Accounting, Auditing and Taxation, 19(1), 35–54. https://doi.org/10.1016/j.intaccaudtax.2009.12.003
Chen, C., & Lai, S. (2012). Financial Constraint and Tax Aggressiveness. Working Paper, University of Auckland, 1–41.
Chen, S., Chen, X., Cheng, Q., & Shevlin, T. (2010). Are family firms more tax aggressive than non-family firms? Journal of Financial Economics, 95(1), 41-61. https://doi.org/10.1016/j.jfineco.2009.02.003
Ciconte, W., Donohoe, M. P., Lisowsky, P., & Mayberry, M. A. (2014). Predictable Uncertainty: The Relation between Unrecognized Tax Benefits and Future Income Tax Cash Outflows. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2390150
Cobham, A. (2005). Tax evasion, tax avoidance and development finance. QEH Working Paper Series, 129(129), 1–20.
Demerjian, P. R., Lewis, M. F., Lev, B. I., & McVay, S. E. (2012). Managerial Ability and Earnings Quality. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1650309
Desai, M. A., & Dharmapala, D. (2009). Earnings management, corporate tax shelters, and book-tax alignment. National Tax Journal, 62(1), 169-186.
Desai, M. A., & Dharmapala, D. (2006). Corporate tax avoidance and high-powered incentives. Journal of Financial Economics, 79(1), 145–179. https://doi.org/10.1016/j.jfineco.2005.02.002
Dharmapala, D. (2008). What problems and opportunities are created by tax havens. Oxford Review of Economic Policy, 24(4), 661–679. https://doi.org/10.1093/oxrep/grn031
Dyreng, S. D., Hanlon, M., & Maydew, E. L. (2008). Long-Run Corporate Tax Avoidance. The Accounting Review, 83(1), 61–82.
Eckel, N. (1981). Smoothing Hypothesis Revisited. Abacus, 17(1), 28–40. https://doi.org/10.1111/j.1467-6281.1981.tb00099.x
Edwards, A. S., Schwab, C., & Shevlin, T. J. (2012). Financial Constraints and the Incentive for Tax Planning. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2163766
Edwards, A., Schwab, C., & Shevlin, T. (2016). Financial constraints and cash tax savings. Accounting Review, 91(3), 859–881. https://doi.org/10.2308/accr-51282
Erickson, M., Hanlon, M., & Maydew, E. L. (2005). How Much Will Firms Pay for Earnings That Do Not Exist? Evidence of Taxes Paid on Allegedly Fraudulent Earnings. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.347420
Falbo, T. D., & Firmansyah, A. (2018). Thin Capitalization, Transfer Pricing Aggresiveness, Penghindaran Pajak. Indonesian Journal of Accounting and Governance, 2(1), 1–28. https://doi.org/10.36766/ijag.v2i1.6
Firmansyah, A., & Bayuaji, R. (2019). Financial constraints, investment opportunity set, financial reporting aggressiveness, tax aggressiveness: Evidence from indonesia manufacturing companies. Academy of Accounting and Financial Studies Journal, 23(5), 1–18.
Fonseca, A. R., & González, F. (2008). Cross-country determinants of bank income smoothing by managing loan-loss provisions. Journal of Banking and Finance, 32(2), 217–228. https://doi.org/10.1016/j.jbankfin.2007.02.012
Francis, B., Sun, X., & Wu, Q. (2013). Managerial Ability and Tax Avoidance. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2348695
Frank, M. margaret, Lynch, L. J., & Rego, S. O. (2009). Tax Reporting Aggressiveness and Its Relation Financial Reporting University of Virginia. Accounting Review, 84(2), 467–496. https://doi.org/10.2308/accr.2009.84.2.467
Graham, J. R., Harvey, C. R., & Shiva Rajgopal. (2005). The economic implications of corporate financial reporting. Journal of Accounting and Economics, 40(1–3), 3–73. https://doi.org/10.1016/j.jacceco.2005.01.002
Gravelle, J. G. (2009). Tax havens: International tax avoidance and evasion. National Tax Journal, 62(4), 727-753.
Grubert, H., & Mutti, J. (1991). Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making. The Review of Economics and Statistics, 73(2), 285. https://doi.org/10.2307/2109519
Handayani, D., Andreas, & Fitrios, R. (2013). Pengaruh Kecakapan Manajerial , Set Kesempatan Investasi dan Kepemilikan Pemerintah Terhadap Tarif Pajak Efektif. Simposium Nasional Akuntansi XVI Manado, 6(September 2013), 2532–2562.
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
Hanlon, M., & Slemrod, J. (2009). What does tax aggressiveness signal? Evidence from stock price reactions to news about tax shelter involvement. Journal of Public economics, 93(1-2), 126-141. https://doi.org/10.1016/j.jpubeco.2008.09.004
Healy, P. M., & Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13 (4)(November), 365–383. https://doi.org/10.2308/acch.1999.13.4.365
Huang, P., Zhang, Y., Deis, D. R., & Moffitt, J. S. (2009). Do artificial income smoothing and real income smoothing contribute to firm value equivalently? Journal of Banking and Finance, 33(2), 224–233. https://doi.org/10.1016/j.jbankfin.2008.07.012
Janský, P., Prats, A., & Aid, C. (2013). Multinational corporations and the profit-shifting lure of tax havens. Christian Aid Occasional Paper, 9(9), 15.
Jihad Akbar. (2020). Tentang Resesi Ekonomi dan yang Harus Dipersiapkan. Kompas, 5 Agustus 2020.
Kang, J. Y., & Ko, J. K. (2014). Tax avoidance, firm value and corporate governance. Korean Accounting Review, 39(1), 147–189.
Koester, A., Shevlin, T., & Wangerin, D. (2017). The role of managerial ability in corporate tax avoidance. Management Science, 63(10), 3285–3310. https://doi.org/10.1287/mnsc.2016.2510
Mahdavi, G. H., & Saberi, M. (2016). Managerial ability and financial constraints (using data envelopment analysis). Quarterly Financial Accounting, 8(31), 51-73.
Martani, D., & Kamila, P. A. (2014). Analisis Hubungan Agresivitas Pelaporan Keuangan dan Agresivitas Pajak. Simposium Nasional Akuntansi XVII. Lombok, 24–27.
Media Keuangan. (2019). Meningkatkan Rasio Pajak. Jakarta: Kementerian Keuangan.
Olibe, K. O., & Rezaee, Z. (2008). Income shifting and corporate taxation: the role of cross‐border intrafirm transfers. Review of Accounting and Finance, 7(1), 83–101. https://doi.org/10.1108/14757700810853860
Panjalusman, P. A., Nugraha, E., & Setiawan, A. (2018). Pengaruh Transfer Pricing Terhadap Penghindaran Pajak. Jurnal Pendidikan Akuntansi & Keuangan, 6(2), 105. https://doi.org/10.17509/jpak.v6i2.15916
Park, J., Ko, C. Y., Jung, H., & Lee, Y. S. (2016). Managerial ability and tax avoidance: evidence from Korea. Asia-Pacific Journal of Accounting and Economics, 23(4), 449–477. https://doi.org/10.1080/16081625.2015.1017590
Pendse, S. J. (2012). International Transfer Pricing: A Review of Non-Tax Outlook. Procedia - Social and Behavioral Sciences, 37, 337–343. https://doi.org/10.1016/j.sbspro.2012.03.299
Plesner Rossing, C., & Rohde, C. (2014). Transfer pricing: aligning the research agenda to organizational reality. Journal of Accounting & Organizational Change, 10(3), 266–287. https://doi.org/10.1108/JAOC-03-2012-0017
Rego, S. O. (2005). Tax Avoidance Activities of U.S. Multinational Corporations. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.320343
Richardson, G., & Lanis, R. (2007). Determinants of the variability in corporate effective tax rates and tax reform: Evidence from Australia. Journal of Accounting and Public Policy, 26(6), 689–704. https://doi.org/10.1016/j.jaccpubpol.2007.10.003
Richardson, G., Taylor, G., & Lanis, R. (2013). Determinants of transfer pricing aggressiveness: Empirical evidence from Australian firms. Journal of Contemporary Accounting & Economics, 9(2), 136–150. https://doi.org/10.1016/j.jcae.2013.06.002
Slemrod, J. (2007). Cheating Ourselves : The Economics of Slemrod, J. (2007). Cheating Ourselves : The Economics of Tax Evasion. Tax Evasion. Journal of Economic Perspectives, 21(1), 25–48. https://doi.org/10.1257/jep.21.1.25
Taylor, G., & Richardson, G. (2012). International Corporate Tax Avoidance Practices: Evidence from Australian Firms. International Journal of Accounting, 47(4), 469–496. https://doi.org/10.1016/j.intacc.2012.10.004
Taylor, G., & Richardson, G. (2014). Incentives for corporate tax planning and reporting: Empirical evidence from Australia. Journal of Contemporary Accounting and Economics, 10(1), 1–15. https://doi.org/10.1016/j.jcae.2013.11.003
Wang, S. dan Chen, S. (2012). The Motivation for Tax Avoidance in Earnings Management. International Conference on Engineering and Business Management, 447–450.
Whited, T. M., & Wu, G. (2006). Financial constraints risk. Review of Financial Studies, 19(2), 531–559. https://doi.org/10.1093/rfs/hhj012
Published
2021-07-25
How to Cite
ARISTYATAMA, Hanung Adittya; BANDIYONO, Agus.
Moderation of Financial Constraints in Transfer Pricing Aggressiveness, Income Smoothing, and Managerial Ability to Avoid Taxation.
Jurnal Ilmiah Akuntansi dan Bisnis, [S.l.], v. 16, n. 2, p. 279-297, july 2021.
ISSN 2303-1018.
Available at: <https://ojs.unud.ac.id/index.php/jiab/article/view/67252>. Date accessed: 26 apr. 2024.
doi: https://doi.org/10.24843/JIAB.2021.v16.i02.p07.
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