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TAX AVOIDANCE, BOARD OF COMMISSIONERS, AND LEVERAGE'S
INFLUENCE ON FIRM VALUE WITH PROFITABILITY AS MODERATION
Andre
1*
, Herman Ruslim
2
Tarumanagara University, West Jakarta, Indonesia
1,2
[email protected]
1
, [email protected]
2
ABSTRACT
One way to attract investors is to see how a company's performance can be rated well. The purpose of
this study is to obtain empirical evidence on the effect of tax avoidance, board of commissioners, and
leverage on firm value with profitability being the role of moderating the relationship between the
independent variable and the dependent variable. The data used in this study used quantitative data from
financial statement data registered on the IDX in 2018 – 2021 with 124 samples used using the purposive
sampling method. The hypothesis was tested by regression analysis of panel data. The tests conducted
found that tax avoidance and the board of commissioners had a significant effect on firm value, leverage
did not affect firm value. The results of the interaction test show that profitability cannot moderate
between tax avoidance variables and leverage on firm value, but profitability can moderate the board of
commissioners on firm value with result of Adjusted R2 value gets a result of 22.63% , where there are
still 77.37% more variables that can affect the dependent variable, including: Firm Value.
Keywords: Tax Avoidance; Board of Commisioner; Leverage; Firm Value; Profitability
INTRODUCTION
Company Value is the performance of a company reflected in the stock price formed by
supply and demand in the capital market which can reflect the public's assessment of the company's
performance (Santoso, 2016). The Indonesia Stock Exchange (IDX) as a domestic capital market
felt the impact of the COVID-19 outbreak, on March 2, 2020, the first declared COVID-19 case in
Indonesia closed the Composite Stock Price Index in the red zone at 5,361.25 or decreased by
1.68%, it could happen because it triggered investors to panic (Yahoo Finance, 2020). On March
24, 2020, the Composite Stock Price Index fell significantly to the lowest level in 2020 to 3,937.63
or compared to 2019 of 6,299.54, it can be said to have decreased by 37.49%. Although until the
end of 2020 the Composite Stock Price Index experienced another increase, making the sharp
decline decrease to -5.09% of 5,979.07 from the closing of the end of 2019 of 6,299.54. This makes
the capitalization of the Composite Stock Price Index decrease by Rp. 278 trillion in 2020 (Ulfah,
2020; Ullah et al., 2019).
Chart 1 Indonesia Composite Indexs
The conditions passed by the company for its performance from the beginning of
establishment to the present can be seen from its Corporate Value. Company Value that has a high
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value is the desire of a stakeholder, stakeholder welfare increases if the Company Value increases
it can also increase public trust in these companies. There are several aspects to measure Company
Value, but one of them is by looking at the company's stock market price. Stock market price
reflects the selling value of a company (Febrina, 2010). If the company's stock market price
increases, the Company's Value will increase and vice versa also if the company's stock market
price decreases, the Company's Value will also decrease. Company performance is often interpreted
as not good because the price is too low, but with a high stock price can also reduce the ability of
an investor to invest in the company. It can be known that more investors who invest can also
increase the Company's Value. This financial statement can also be referred to as an evaluation
report on company performance, operations, investment and funding (Riswan & Kesuma, 2014).
Shareholders can benefit when the company has good financial capabilities and large returns,
it also makes the Company Value high. Investors will reconsider investing in the company if the
Company Value decreases due to inconsistent financial capabilities, otherwise good financial
ability will easily attract investors to invest in the company. Manufacturing companies in the food
and beverage sub-sector are companies that process raw materials into finished goods. The
company of this sector continues to grow over time, as it produces the basic survival needs of the
general public. Therefore, food and beverage sub-sector companies are companies that are targeted
by investors to invest. Market prices have factors to determine the price of a Company Value
including internal, external, and company size factors (Winarto, 2015). This PSBB has hit many
industries whose movements are limited due to social distancing, during COVID-19 and PSBB
requires activities to be carried out online. However, even so, there are also companies that
benefited during the COVID-19 outbreak, namely companies engaged in Pharmaceuticals and
Health. The situation caused by this outbreak has a positive impact on the capital market (Lyke,
2020; (Phan & Narayan, 2020).
Company value is a description of the trust of outsiders or investors in the company achieved
in several years when the company's activities were running when the company was established
until now (Noerirawan, 2012). Company Value has many factors that can be influenced, but this
study only uses several factors including Tax Avoidance, Board of Commissioners Size, and
Leverage and uses a moderation variable, namely Profitability. Tax avoidance is a step to make tax
cost efficiency by showing transactions that are not tax objects in an effort to avoid taxation. When
costs can be reduced by the company, especially tax costs as explained in agency theory, it can
have a good impact on increasing company value (Firm Value). Cash flow that tends to look smooth
both for the short and long term can also provide additional value for investors to invest their money
because the value of the company tends to increase. In (Chen et al., 2014), said that there are direct
costs such as implementation costs, loss of company reputation, and also the potential for violating
certain laws. This can result in and illustrate a manager has his own interest in providing
information in the financial statements, especially on the company's profits, is not true to
stakeholders. In (Yustrianthe & Fatniasih, 2021), said that, tax avoidance is an action carried out
by company managers of a tax plan that is still in accordance with applicable tax law. Through this
tax planning are efforts to reduce tax costs that must be borne by taxpayers which must be within
the limits of tax law provisions that have been regulated in the legislation on tax planning. The
results of research from (Selviani et al., 2019), said that the high value of tax avoidance, company
value can be affected as well. Tax avoidance can have an impact on agency costs that will be
incurred by the company. Because of opportunistic actions taken by a manager on tax avoidance
activities that can make the market react negatively. This is also in line with the research of (Hanif
& Ardiyanto, 2019; Selviani et al., 2019; Wardani & Juliani, 2018) which revealed that tax
avoidance negatively affects company value.
The size of the Board of Commissioners is a role that is applied in Good Corporate
Governance in order to become one of the management systems in optimizing company activities.
The function of independent commaris is to supervise transactions to related parties where there is
a conflict of interest on the transaction, protect minority shareholders from exploitation of majority
shareholders, and finally because of their experience outside the company they can also become
consultants for the company (Zef Arfiansyah & Fin, 2020). The role of the board of commissioners
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is also as a responsible leader and also has full authority over direction, control in order to achieve
company goals, as conveyed by research by (Salafudin, 2016; Siahaan, 2014). The results of
Widianingsih's research (2018), show that the size of the board of commissioners has a positive
relationship with company value. This is because the role of commissioners who are objective and
have an equal placement among various relevance in the relevance of the company and
shareholders is the mission to create this situation.
Leverage is described for the tools used by a company to the extent of financing its debt with
the company's assets compared to its capital. In (Ha & Le Minh, 2017), said that leverage can be
used optimally to get higher profits through assets or capital derived from debt. The results of
research conducted by (Rusiah et al., 2017) and Sukaenah (2015) which stated that having a
significant negative impact on the company between leverage and company value, high debt value
can have a high risk impact which will be imposed on company shareholders. This study is also
contrary to the research of (Thesman, 2014; Tommy & Saerang, 2014).
This study has differences with previous studies, namely using profitability moderation
variables in testing independent variables of tax avoidance, board of commissioners size, and
leverage with dependent firm value variables. In (Gultom & Wijaya, 2013, p. 53), said that
profitability in a certain time how the company can get a net profit, where the net profit will be
distributed to shareholders or stakeholders in the form of dividends, but it can also be done in other
ways if it does not distribute dividends, namely saved and used for future purposes to expand and
improve performance even higher the company. The difference between this study and previous
studies is the phenomenon that occurred between the time before the COVID-19 outbreak and when
the COVID-19 outbreak entered Indonesia and made Indonesia's economic activity quite shaken
and also used relevant and reliable variables to see the impact of the COVID-19 outbreak in
Indonesia. Here is also the reason why researchers use Profitability moderation, because it relates
to the company's ability to generate profits from its business activities. Profitability can also be an
important consideration for investors in line with the Company's Value in their investment
decisions to the company.
Agency Theory
Agency Theory is a theory that explains the ownership relationship of companies, which
is often known as Principal and company management is usually referred to as Agent. According
to (Jensen & Meckling, 1976, p. 309), Agency has a relationship between Principal and Agent
whose goals are unidirectional, what is ordered by the Principal will be done and supported by
the Agent. A contract entered into by one or more individual Principals entering into an agreement
with an agency to do something can be referred to as a relationship between agencies. The
management (Agent) must be responsible for the work that has been contracted by stakeholders
(shareholders) for their interests.
Signal Theory
In making decisions in investing, outsiders need the information to be published because it
can provide signals to outsiders or investors (Jogiyanto, 2003, p. 392). Promotion or information
is a signal given by the company to provide information to outside parties that the company is
better than other companies. Management usually uses this signal theory to minimize information
asymmetry, users or outsiders can get the information through financial statements that have been
provided by management. For companies, the signal given if good news can provide an advantage
to compete with other companies. This is because it attracts investors or outsiders to invest in this
company and can also increase the firm value of this company. In (Sunardi, 2010), said that
financial statements that have been considered good can provide signals to investors then it can
also increase the value of the company.
The Relationship between Tax Avoidance and Firm Value
In agency theory, said that tax avoidance actions can arise because there is a connection to
the relationship to carry out good corporate governance. A company does tax avoidance in the
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future or not, it can be seen from the implementation can lead a company or not. Investors want
to invest company money if it is seen that the value of the company can support investor prosperity
or not. The hope of investors that they can get accurate data and information to increase investor
confidence by knowing the maximum profit by minimizing the tax costs borne by the company.
Tax avoidance activities that are still in accordance with applicable rules which will increase net
profit after tax can make a positive influence relationship on company value. Information on the
net profit obtained by the company is expected to be used as a positive signal for investors where
the reflection can be seen from the increase in stock prices in the capital market.
H1 : Tax Avoidance has a significant effect on Firm Value.
The Relationship between the size of the Board of Commissioners and Firm Value
The role of the board of commissioners is also as a responsible leader and also has full
authority over direction, control in order to achieve company goals. In Wibowo (2018), said that
the size of the Board of Commissioners in a high number can have an impact on the effectiveness
of supervision and success to increase company value. The role of commissioners who are
objective and have an equal placement among various relevance in the relevance of the company
and shareholders is the mission to create this situation.
H2 : Board of Commissioners has a significant effect on Firm Value.
The Relationship between Leverage and Firm Value
Leverage is defined as a company with debt that is widely used to obtain a company's
assets. Companies that have a lot of debt which is used to get a company asset in their operational
activities tend to have a high leverage value. Debt is an alternative path that the company plans
to meet the needs and budget that has been prepared. The high leverage value of a company can
have a negative impact on the company because the company's value decreases.
H3: Leverage significantly affects Firm Value.
The Relationship between Tax Avoidance and Firm Value moderated by Profitability
A company must provide benefits for stakeholders, not just develop for the company itself,
given that the company is not just an entity. Companies that can provide maximum profits make
investors more interested, it will also have an impact on the value of the company that can make
the value rise. When a company carries out tax avoidance activities or actions (Tax Avoidance)
indicators are also needed to measure its success or not in increasing profits, namely by
calculating profitability. In (Glezakos et al., 2012), revealed that this calculation can provide a
company scheme in obtaining profits and can also provide an effective company manager strategy
or not shown from the company's investment income and sales turnover.
H4: Profitability can strengthen the relationship between Tax Avoidance and Firm Value.
The Relationship between the size of the Board of Commissioners and Firm Value
moderated by Profitability
Profitability in relation to these variables as a guide for investors to measure the magnitude
of a company's ability to earn profits. According to signal theory, this is a positive signal for
investors towards the good performance of a company and also has real business prospects in the
future so that it can have an impact on company value. The larger size of the Board of
Commissioners is believed to increase supervision of the performance of its directors to avoid
fraudulent actions that can be initiated by parties who have authority over financial reporting.
The board of directors and management of the company are always supervised in carrying out
their duties by the board of commissioners, this can also make it easier for a commissioner to
submit suggestions and input so that it can have a positive impact on company value.
H5: Profitability can strengthen the relationship between the Board of Commissioners and Firm
Value.
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The Relationship between Leverage and Firm Value moderated by Profitability
To get funding can affect the value of the company. A company needs to increase the value
of its profits for consideration when it wants to get a loan as desired. With a high level of profit,
it is believed that it can cover debts to third parties so that it is expected that the need for funds
needed by operations will not be a problem in the future. Profitability has an important role in
debt policy. This debt policy can increase the value of the company. Companies will be more
likely to use internal funds because high profits are enough to cover the company's activities or
operational activities. This decision for funding as stated earlier greatly affects the value of the
company. Low debt levels followed by high profits are believed that a management is able to
manage company funding well and increase the use of its funds to obtain profits.
H6: Profitability can weaken the relationship between Leverage and Firm Value.
Chart 2 Framework
RESEARCH METHOD
This research is a research with a quantitative approach. Research with a quantitative
approach uses financial statement data from manufacturing companies, especially in the goods and
consumption industry in the IDX during 2018-2021. Sample selection by means of sampling
process. The method in the sampling process uses the purposive sampling method. Purposive
sampling method is a technique in sampling in research with certain considerations.
Table 1
Sampel Criteria
No.
Sample Criteria
Number of
Companies
1
Manufacturing Companies listed on the Indonesia Stock Exchange
(IDX) in May 2023.
242
2
Companies listed on the Indonesia Stock Exchange (IDX) are engaged
in manufacturing, not the consumer goods industry sector and not
continuously in 2018 - 2021
-197
3
Companies listed on the Indonesia Stock Exchange (IDX) are engaged
in manufacturing in the consumer goods industry sector (Consumer
Goods) not with audited company financial statements and have been
published on December 31, 2018 – 2021.
0
4
Companies listed on the Indonesia Stock Exchange (IDX) are engaged
in manufacturing the consumer goods industry sector which is in a
loss-making condition in 2018 – 2021.
-14
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5
Companies listed on the Indonesia Stock Exchange (IDX) engaged in
manufacturing the consumer goods industry sector (Consumer Goods)
conducted a business merger or merger in 2018 – 2021.
0
6
Companies listed on the Indonesia Stock Exchange (IDX) are engaged
in manufacturing in the consumer goods industry sector (Consumer
Goods) not with company financial statements presented in Rupiah
currency in 2018 – 2021.
0
Number of Companies sampled
31
Total sample with a period of 4 years
124
The dependent variable used by researchers in this study is company value (Firm Value).
Firm Value here is proxied using Tobin's Q proxy. The operationalization of variables used in this
study refers to Daeli & Endri's (2018) research as follows:
(MVE = Closing Price x Outstanding Shares)
The independent variables used by researchers in this study were tax avoidance, the size of
the board of commissioners, leverage. In this study, the first independent variable that will be
tested by researchers is Tax Avoidance. Tax Avoidance is measured using the total bench
marking ratio. The operationalization of variables used in this study refers to the research of
William and Trinawati (2019) as follows:
In this study, the second independent variable that will be tested by researchers is the Board
of Commissioners Size. The size of the Board of Commissioners is a measure in determining the
size of the number of boards of commissioners in a company. The operationalization of the
variables used in this study refers to the research of Oktaviani and Rospitasari (2021) as follows:
In this study the third independent variable that will be tested by researchers is Leverage.
Leverage is a tool for measuring total equity financed by debt. The operationalization of the
variables used in this study refers to the research of Harun et al. (2020) as follows:
The moderation variable used by researchers for research is profitability and also with two
control variables, namely liquidity and firm size. Profitability is considered to affect the strong
weak relationship between dependent and independent variables. The operationalization of the
variables used in this study refers to Endri & Fathony's (2020) research as follows:
The first control variable liquidity is measured by the current asset ratio which is
a comparison between Current Assets and Current Liability and the second contorl
variable firm size is measured by Naturalization Log of the total assets owned by a
company.
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Hypothesis testing in research using panel data regression analysis with model
testing used is the chow test, hausman test, and lagrange multiplier test which aims to get
the best model for this study with a common effect model, fixed effect model, or random
effect model. The research model in this study is as follows:
Information:
PBV : Company Value (Firm Value)
TA : Tax Avoidance (Tax Avoidance)
BOC : Board of Commisioner (Board of Commisioner)
DER : Leverage
ROA : Profitabilitas (Profitability)
CR : Likuiditas (Liquidity)
SIZE : Company Size (Firm Size)
α : Constant
β1, β2, β3,…, β8 : Koef. Regresi
ɛ : Error
it : Entities and Periods
RESULTS AND DISCUSSION
The results of the descriptive statistical test for the variables in this study are as follows:
Table 2 Descriptive Statistical Test Result
Date:
05/14/23
Time: 20:03
Sample: 2018 2021
PBV
TA
BOC
DER
TAROA
BOCROA
DERROA
CR
SIZE
Mean
2.783073
0.008455
0.406240
0.776853
0.000508
0.024412
0.046683
2.962501
29.10077
Maximum
18.35514
0.124100
0.833333
3.824769
0.007457
0.050077
0.229840
13.30906
32.82040
Minimum
0.435195
0.000000
0.166667
0.121670
0.000000
0.010015
0.007311
0.614071
25.95468
Std. Dev.
2.990416
0.020402
0.094669
0.639141
0.001226
0.005689
0.038408
2.570710
1.520463
The results of a descriptive study with a sample of 124 in 2018 – 2021 were used in this
study. The results of this descriptive statistical test show the variables used in this study, namely
Firm Value, Tax Avoidance, Board of Commissioners, Leverage, Liquidity, and Firm Size. For
the variable Company Value (Firm Value) get a minimum value (Min) of 0.435195, a maximum
value (Max) of 18.35514, an average value (mean) of 2.783073, and a standard deviation of
2.990416. For the Tax Avoidance variable, the minimum value (Min) is 0.0000000, the maximum
value (Max) is 0.1241, the average value (mean) is 0.008455, and the standard deviation is
0.020402. For the variable Size of the Board of Commissioners (Board of Commissioners) get a
minimum value (Min) of 0.166667, a maximum value (Max) of 0.8333333, an average value
(mean) of 0.406240, and a standard deviation of 0.094669. For the variable Leverage get a
minimum value (Min) of 0.121670, a maximum value (Max) of 3.824769, an average value
(mean) of 0.776853, and a standard deviation of 0.639141.
The interaction variables in the variables Tax Avoidance and Profitability get a minimum
value (Min) of 0.000000, a maximum value (Max) of 0.007457, an average value (mean) of
0.000508, and a standard deviation of 0.001226. The interaction variables on the Board of
Commissioners Size and Profitability variables get a minimum value (Min) of 0.010015, a
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maximum value (Max) of 0.050077, an average value (mean) of 0.024412, and a standard
deviation of 0.005689. The interaction variables in the Leverage and Profitability variables get a
minimum value (Min) of 0.007311, a maximum value (Max) of 0.229840, an average value
(mean) of 0.046683, and a standard deviation of 0.038408. And with the first control variable,
namely Liquidity (Liquidity) get a minimum value (Min) of 0.614071, a maximum value (Max)
of 13.30906, an average value (mean) of 2.962501, and a standard deviation of 2.570710. The
second control variable, namely Firm Size, received a minimum value (Min) of 25.95468, a
maximum value (Max) of 32.82040, an average value of 29.10077, and a standard deviation of
1.520463.
The results of the hypothesis test get the best model, namely the random effect model with
the following summary:
Table 3 Hypothesis Test Results
Variable
Tax Avoidance
Coeff
t-Stat
Prob.
C
-2,461
-0,180
0,857
TA
-1,471
-2,075
0,040
BOC
0,117
2,381
0,019
DER
-3,492
-1,460
0,147
TAROA
0,001
1,958
0,053
BOCROA
1,954
2,382
0,019
DERROA
2,025
1,189
0,237
CR
-0,036
-0,397
0,692
SIZE
2,128
1,836
0,405
R
2
0,277
Adj R
2
0,226
F-Stat
5,496
Prob (F-Stat)
0,000
The Effect of Tax Avoidance on Firm Value
The test results from the Random Effect Model (REM) for the Tax Avoidance variable get
a probability value of 0.0403, meaning that this value is < 0.05. Based on this probability value,
the Tax Avoidance variable has an influence on the Company Value variable (Firm Value) with
a coefficient value that leads to a negative value. The conclusion of these results means that the
variable Tax Avoidance has a negative effect on Company Value (Firm Value) so that from this
conclusion that Ha1 is accepted.
The Effect of Board of Commissioners Size on Firm Value
The test results from the Random Effect Model (REM) for the Board of Commissioners
Size variable get a probability value of 0.0189, meaning that this value < 0.05. Based on this
probability value, the Board of Commissioners Size variable has an influence on the Company
Value variable (Firm Value) with a coefficient value that leads to a positive value. The conclusion
of these results means that the Board of Commissioners Size variable has a positive effect on Firm
Value, so from this conclusion that Ha2 is accepted.
The Effect of Leverage on Firm Value Compliance
The test results of the Random Effect Model (REM) for the Leverage variable get a
probability value of 0.1471, meaning that this value > 0.05. Based on this probability value that
the Leverage variable has no influence on the Company Value variable (Firm Value) with the
coefficient value leading to a negative value. The conclusion of these results means that the
variable Leverage has no effect on the Company Value (Firm Value), so from this conclusion that
Ha3 is rejected.
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The Effect of Tax Avoidance on Firm Value with Profitability as Moderation
The test results from the Random Effect Model (REM) for the interaction variable between
Tax Avoidance and Profitability get a probability value of 0.0527, meaning that this value is >
0.05. Based on this probability value, the interaction variable between Tax Avoidance and
Profitability has no influence on the Firm Value variable with a coefficient value that leads to a
positive value. The conclusion of these results means that the interaction variable between Tax
Avoidance and Profitability has no effect on Firm Value, so from this conclusion that Ha4 is
rejected.
The Effect of Board of Commissioners Size on Firm Value with Profitability as Moderation
The test results from the Random Effect Model (REM) for the interaction variable between
the Board of Commissioners and Profitability get a probability value of 0.0189, meaning that this
value is < 0.05. Based on this probability value, the interaction variable between the Board of
Commissioners Size and Profitability has an influence on the Company Value variable with a
coefficient value that leads to a positive value. The conclusion of these results means that the
interaction variable between the Board of Commissioners and Profitability affects and strengthens
the Firm Value, so from this conclusion that Ha5 is accepted.
The Effect of Leverage on Firm Value with Profitability as Moderation
The test results of the Random Effect Model (REM) for the interaction variable between
Leverage and Profitability (Profitability) get a probability value of 0.2369, meaning that this value
is > 0.05. Based on this probability value that the variable of interaction between Leverage and
Profitability (Profitability) has no influence on the variable Company Value (Firm Value) with
the value of the coefficient leading to a positive value. The conclusion of these results means that
the variable interaction between Leverage and Profitability has no effect on Firm Value, so from
this conclusion that Ha6 is rejected.
CONCLUSION
In this study the tests conducted found that tax avoidance and the board of commissioners
had a significant effect on firm value, leverage did not affect firm value. The results of the
interaction test show that profitability cannot moderate between tax avoidance variables and
leverage on firm value, but profitability can moderate the board of commissioners on firm value
and has many limitations that need to be done by further researchers, including: First, the data
used to be a sample is only manufacturing companies engaged in the consumer goods industry
sector listed on the Indonesia Stock Exchange (IDX) in 2018-2021 with 31 samples of companies
that become data as many as 124. This is because of the criteria determined by researchers to be
sampled. Second, it is known that the result of the Adjusted R2 value only gets a result of 22.63,
where there are still 77.37% more variables that can affect the dependent variable, including: Firm
Value.
Based on the limitations conveyed in this study, the researcher provides suggestions for use
as further research, including: First, expanding sectors that need further research, in order to get
more samples and a broader view of relationships that can be influenced by Firm Value. Second,
the next researcher is expected to provide variations on other variables to explain the dependent
variable in this study, namely Firm Value in the hope of increasing the Adjusted R2 value of
future studies.
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