Why Ownership Matters in Corporate Tax Decisions
Tax avoidance remains an important issue in corporate governance because companies may seek to reduce their tax burden through the strategic use of tax provisions or available legal loopholes. While reducing tax liabilities can increase corporate profits, tax-related strategies may also create regulatory, financial, and reputational risks.
Hidayatullifa and Tarmidi examined the issue through the perspective of ownership structure. Different groups of shareholders may have different interests and levels of involvement in corporate decision-making. Public shareholders, institutional investors, and foreign investors may therefore influence management differently, including decisions related to taxation.
The researchers also considered company performance as a factor that could change the relationship between ownership structure and tax avoidance. This provides a broader view of whether ownership alone is sufficient to influence corporate tax behavior.
How the Research Was Conducted
The study used financial data from 16 manufacturing companies listed on the IDX over the 2019–2023 period. The companies were selected using purposive sampling, meaning that firms were chosen according to specific criteria established by the researchers.
Hidayatullifa and Tarmidi analyzed the data using multiple linear regression with panel data. This approach allowed the researchers to examine differences among companies as well as changes across the five-year observation period.
Tax avoidance was measured using the effective tax rate, while public ownership, institutional ownership, and foreign ownership were used as the main ownership variables. Company performance was represented by return on assets (ROA) and tested as a moderating variable. The analysis selected a Random Effect Model for the panel-data regression.
Public Ownership Shows a Significant Relationship
The clearest direct finding concerned public ownership. The analysis produced a negative and statistically significant relationship between public ownership and tax avoidance, with a coefficient of -1.870876 and a p-value of 0.0018.
In practical terms, companies with higher public ownership in the study tended to show lower levels of tax avoidance. The researchers associate this pattern with greater external pressure for transparency and accountability from public shareholders.
By contrast, institutional ownership did not show a statistically significant relationship with tax avoidance. Its p-value was 0.9521, indicating that institutional ownership did not demonstrate a meaningful direct influence within the observed sample.
Foreign ownership also did not have a significant direct effect. The variable produced a p-value of 0.4402. The findings therefore suggest that simply having institutional or foreign shareholders was not sufficient to produce a statistically significant change in tax avoidance among the companies examined.
Company Performance Changes Some Relationships
The study also found that company performance plays a moderating role in two ownership relationships.
The interaction between public ownership and company performance was statistically significant, with a p-value of 0.0039. The researchers conclude that company performance moderates the relationship between public ownership and tax avoidance.
The interaction between institutional ownership and company performance was not significant, with a p-value of 0.2240. This means that differences in company performance did not significantly change the relationship between institutional ownership and tax avoidance in the sample.
Meanwhile, the interaction between foreign ownership and company performance was statistically significant, with a p-value of 0.0048. The researchers report that stronger company performance weakens the influence of foreign ownership on tax avoidance.
Overall, the regression model explained 57.47% of the variation in tax avoidance, indicating that the variables included in the model accounted for a substantial proportion of differences in tax avoidance among the observed companies.
Implications for Corporate Governance
The findings have implications for companies, shareholders, and corporate governance practices. For management, the researchers recommend greater transparency and accountability in financial reporting, particularly in relation to corporate tax policies.
The results also suggest that shareholders can play an important oversight role. The researchers recommend that investors, particularly institutional and foreign shareholders, become more actively involved in monitoring managerial policies, including taxation.
For future research, Hidayatullifa and Tarmidi recommend expanding the variables examined. Corporate governance, leverage, and company size could provide additional explanations for differences in tax avoidance. They also recommend using longer observation periods and larger samples to improve the generalizability of future findings.
Researchers’ Perspective
According to Destyara Zanneta Hidayatullifa and Deden Tarmidi of the Faculty of Economics and Business, Universitas Mercu Buana, the findings indicate that ownership structure cannot be viewed uniformly when examining corporate tax behavior. Public ownership showed a significant relationship with tax avoidance, while institutional and foreign ownership did not show significant direct relationships. Company performance further changed some of these relationships.
The researchers emphasize that stronger corporate performance and shareholder involvement can form part of broader oversight mechanisms, while effective governance remains important regardless of ownership composition.
Study Limitations
The researchers caution that the findings should be interpreted within the study's scope. The sample consisted of only 16 manufacturing companies listed on the IDX during 2019–2023, meaning the results may not apply directly to other industries.
The study also focused on three ownership variables and company performance. Other factors, including tax policy, corporate governance, leverage, company size, and macroeconomic conditions, were not examined in depth. Because the research relied on secondary financial data, the accuracy and completeness of company reporting may also affect the results.
Author Profiles
Destyara Zanneta Hidayatullifa — Faculty of Economics and Business, Universitas Mercu Buana, Jakarta, Indonesia. Her article focuses on ownership structure, tax avoidance, and company performance.
Deden Tarmidi — Faculty of Economics and Business, Universitas Mercu Buana, Jakarta, Indonesia. His contribution in the article concerns the analysis of ownership structure, tax avoidance, and corporate performance.
The article does not state the authors’ academic degrees or formally designated fields of expertise beyond their institutional affiliation and research focus.
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