Corporate governance mechanisms significantly influence corporate tax policies in Indonesia’s industrial sector, but institutional ownership has emerged as the most effective factor in improving corporate tax compliance, according to a study conducted by Salsa Vonni Indrayani, Wiralestari, Ilham Wahyudi, and Enggar Diah Puspa Arum from Universitas Jambi. Published in 2026 in the International Journal of Management Analytics (IJMA), the study examines the impact of audit committees, independent commissioners, and institutional ownership on the Effective Tax Rate (ETR) of industrial sector companies listed on the Indonesia Stock Exchange between 2020 and 2024.
The research explains that taxes remain one of the primary sources of government revenue, especially in developing countries such as Indonesia. However, for corporations, taxes are often viewed as a financial burden that reduces net profits, encouraging management to implement tax planning and tax avoidance strategies. One of the most widely used indicators for measuring corporate tax compliance is the Effective Tax Rate (ETR), calculated as the ratio of tax expense to pre-tax income.
According to the study, industrial sector companies possess characteristics that make tax management more complex than in many other sectors. Industrial firms typically have high asset intensity, large operational costs, and broad production activities, creating more opportunities for tax planning strategies. The sector is also one of the largest contributors to national tax revenue, making its tax behavior highly relevant for empirical investigation.
The research used a quantitative case study approach focusing on industrial companies listed on the Indonesia Stock Exchange during the 2020–2024 period. From a total population of 65 industrial companies, researchers applied purposive sampling and selected 13 companies as the final sample, resulting in 65 research observations.
The study examined three major corporate governance mechanisms:
- audit committees,
- independent commissioners,
- and institutional ownership.
Data analysis was conducted using panel data regression with EViews 12 software. After conducting Chow and Hausman tests, the researchers determined that the Fixed Effect Model (FEM) was the most appropriate analytical model for explaining the relationships between variables.
The statistical analysis showed that the average Effective Tax Rate among sampled industrial firms was 24.48 percent, meaning that, on average, companies paid taxes equal to nearly one-quarter of their pre-tax income. The study also found that average institutional ownership reached 45.51 percent, while the proportion of independent commissioners averaged 37.44 percent.
One of the study’s main findings revealed that institutional ownership has a positive and significant effect on the Effective Tax Rate. A regression coefficient of 1.3057 with a probability value of 0.000 indicates that the higher the proportion of institutional ownership, the higher the level of corporate tax compliance.
Researchers explain that institutional investors such as banks, investment firms, and financial institutions possess stronger monitoring capabilities over corporate management. The presence of institutional shareholders increases transparency, accountability, and oversight of corporate tax policies, thereby limiting opportunities for aggressive tax avoidance practices.
In contrast, the study found that audit committees and independent commissioners did not have a significant effect on the Effective Tax Rate. The audit committee variable recorded a probability value of 0.238, while independent commissioners showed a probability value of 0.262, both exceeding the 0.05 statistical significance threshold.
According to the researchers, these findings indicate that internal corporate monitoring mechanisms have not been fully effective in controlling corporate tax policies. Limited expertise among audit committee members, insufficient independence, and the dominance of management in decision-making processes are believed to weaken the effectiveness of these governance mechanisms.
Although only institutional ownership showed a significant partial effect, the study found that all corporate governance mechanisms simultaneously influenced the Effective Tax Rate. The F-test produced a probability value of 0.000353, which is below the 0.05 significance level, confirming the overall significance of the governance model.
The research also reported an R-Squared value of 0.523, indicating that approximately 52.3 percent of the variation in Effective Tax Rate could be explained by the corporate governance variables included in the study, while the remaining variation was influenced by factors outside the research model.
According to the researchers, these findings reinforce Agency Theory, which argues that conflicts of interest between management and shareholders can be reduced through strong external monitoring systems. In this context, institutional ownership appears more effective than internal monitoring mechanisms in limiting opportunistic managerial behavior related to corporate tax policies.
The study recommends that companies strengthen integrated corporate governance systems through both internal and external monitoring mechanisms. Researchers also suggest that regulators and policymakers improve the implementation quality of corporate governance practices in order to enhance tax compliance and reduce corporate tax avoidance.
The findings are considered important for regulators, investors, and corporations because they demonstrate that effective corporate governance influences not only business performance but also national tax compliance and state revenue generation.
Author Profiles
- Salsa Vonni Indrayani- Universitas Jambi
- Wiralestari, Ilham Wahyudi-Universitas Jambi
- Enggar Diah Puspa Arum - Universitas Jambi
Research Source
Indrayani, S.V., Wiralestari, Wahyudi, I., & Arum, E.D.P. (2026). The Effect of Corporate Governance Mechanisms on Effective Tax Rate: An Empirical Study of Industrial Sector Companies Listed on the Indonesia Stock Exchange for the 2020–2024 Period. International Journal of Management Analytics (IJMA), Vol. 4 No. 2, 289–304.
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