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FORMOSA NEWS - Madura - Financial sector companies listed on the Indonesia Stock Exchange (IDX) lean toward strict regulatory compliance and tax responsibility rather than aggressive tax avoidance strategies when their profits rise. This insight comes from a comprehensive financial tracking study published in June 2026 by researchers Cindy Dyah Eka Putri and Isnani Yuli Andini from Universitas Wiraraja, Indonesia. Examining the financial behavior of corporate entities from 2022 to 2024, the study sheds light on how internal corporate environments shape tax strategies, challenging common assumptions about corporate greed and executive overconfidence.
Background: The Balance of National Revenue and Corporate Wealth
Tax avoidance represents a persistent challenge for economic policymakers worldwide. While legal, utilizing systemic loopholes to reduce tax burdens directly impacts public infrastructure funding and social welfare programs. The issue remains highly visible in Indonesia, where the national tax ratio relative to Gross Domestic Product (GDP) slipped from 10.31% in 2023 to 10.07% in 2024. Data from international monitoring networks indicates that corporate tax maneuvers cost Indonesia approximately US$4.86 billion in uncollected revenue annually. Because the financial industry features intricate asset structures and systemic significance to the broader economy, understanding what drives or limits tax minimization within this sector is crucial for effective regulatory oversight.
Methodology: Data-Driven Evaluation of Publicly Traded Firms
The researchers adopted a rigorous quantitative design to dissect corporate performance data, evaluating a refined sample of 36 financial companies listed on the IDX over a continuous three-year period. This selection criteria yielded 108 separate annual observations. To determine what influences a firm's tax behavior, the study assessed four distinct variables:
Key Findings: Profitability Stands Alone as a Determinant
The data revealed a striking, singular driver behind corporate tax dynamics, countering multiple traditional theories of corporate behavior:
These findings offer useful insights for market regulators, financial institutions, and corporate analysts. For state institutions like the Financial Services Authority (OJK), the results confirm that rigorous financial oversight and the enforcement of the Financial Sector Development and Strengthening Law (UU PPSK) effectively curb aggressive tax planning. The data proves that well-performing companies actively self-regulate to mitigate reputational risks, viewing tax compliance as a strategic tool to attract investors. Meanwhile, companies enduring financial strain remain risk-averse, focusing their leadership energy on debt restructuring and operational adjustments rather than facing potential tax audits or regulatory penalties.
Author Profiles
Cindy Dyah Eka Putri, B.Econ. is an accounting researcher affiliated with the Faculty of Economics and Business at Universitas Wiraraja, Indonesia. Her research centers on corporate financial disclosure, executive behavioral tracking, and public sector tax strategies.
Isnani Yuli Andini, M.A. is a corporate governance expert and lecturer at Universitas Wiraraja, specializing in panel data regression metrics, financial auditing systems, and banking sector transparency.
Source
Cindy Dyah Eka Putri, Isnani Yuli Andini. The Influence of CEO Narcissism, Profitability, Earnings Management, and Financial Distress on Tax Avoidance. Journal of Finance and Business Digital (JFBD). Vol. 5 No. 2, 203-222.
DOI:https://doi.org/10.55927/jfbd.v5i2.24
URL: https://journaljfbd.my.id/index.php/jfbd
Background: The Balance of National Revenue and Corporate Wealth
Tax avoidance represents a persistent challenge for economic policymakers worldwide. While legal, utilizing systemic loopholes to reduce tax burdens directly impacts public infrastructure funding and social welfare programs. The issue remains highly visible in Indonesia, where the national tax ratio relative to Gross Domestic Product (GDP) slipped from 10.31% in 2023 to 10.07% in 2024. Data from international monitoring networks indicates that corporate tax maneuvers cost Indonesia approximately US$4.86 billion in uncollected revenue annually. Because the financial industry features intricate asset structures and systemic significance to the broader economy, understanding what drives or limits tax minimization within this sector is crucial for effective regulatory oversight.
Methodology: Data-Driven Evaluation of Publicly Traded Firms
The researchers adopted a rigorous quantitative design to dissect corporate performance data, evaluating a refined sample of 36 financial companies listed on the IDX over a continuous three-year period. This selection criteria yielded 108 separate annual observations. To determine what influences a firm's tax behavior, the study assessed four distinct variables:
- CEO Narcissism: Calculated via an ordinal visual scale (1 to 5) tracking the size and prominence of the chief executive's photograph within annual reports.
- Profitability: Measured through the Return on Assets (ROA) ratio to capture earnings efficiency.
- Earnings Management: Evaluated using the Modified Jones Model to spot discretionary adjustments in income reporting.
- Financial Distress: Tracked through the Altman Z-Score method to map corporate bankruptcy risk.
Key Findings: Profitability Stands Alone as a Determinant
The data revealed a striking, singular driver behind corporate tax dynamics, countering multiple traditional theories of corporate behavior:
- Profitability Curbs Tax Avoidance: Profitability was the only factor that significantly influenced a firm's tax strategies. The study identified a clear negative relationship: companies generating higher profits consistently maintained lower rates of tax avoidance. Highly profitable financial institutions opt to pay their fair share of taxes to maintain market trust and protect their institutional standing.
- Executive Personality Has No Effect: Narcissistic tendencies or high needs for personal recognition in a CEO did not translate into aggressive corporate tax avoidance schemes.
- Earnings Adjustments and Financial Crises Do Not Distort Tax Behavior: Neither active earnings management nor imminent financial distress pushed financial firms toward exploiting tax loopholes.
- Low Base Tax Avoidance: The average ETR across the observed firms sat at 0.2863, pointing to an overall low level of tax manipulation within Indonesia’s financial sector.
These findings offer useful insights for market regulators, financial institutions, and corporate analysts. For state institutions like the Financial Services Authority (OJK), the results confirm that rigorous financial oversight and the enforcement of the Financial Sector Development and Strengthening Law (UU PPSK) effectively curb aggressive tax planning. The data proves that well-performing companies actively self-regulate to mitigate reputational risks, viewing tax compliance as a strategic tool to attract investors. Meanwhile, companies enduring financial strain remain risk-averse, focusing their leadership energy on debt restructuring and operational adjustments rather than facing potential tax audits or regulatory penalties.
Author Profiles
Cindy Dyah Eka Putri, B.Econ. is an accounting researcher affiliated with the Faculty of Economics and Business at Universitas Wiraraja, Indonesia. Her research centers on corporate financial disclosure, executive behavioral tracking, and public sector tax strategies.
Isnani Yuli Andini, M.A. is a corporate governance expert and lecturer at Universitas Wiraraja, specializing in panel data regression metrics, financial auditing systems, and banking sector transparency.
Source
Cindy Dyah Eka Putri, Isnani Yuli Andini. The Influence of CEO Narcissism, Profitability, Earnings Management, and Financial Distress on Tax Avoidance. Journal of Finance and Business Digital (JFBD). Vol. 5 No. 2, 203-222.
DOI:
URL: https://journaljfbd.my.id/index.php/jfbd
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