Managerial abilities, financial reporting quality, tax aggressiveness: Does corporate social responsibility disclosure matter in an emerging market?

Abstract

This study empirically examines the association of managerial ability and financial reporting quality (represented by accrual earnings management and real earnings management) on tax aggressiveness. Besides, this study employs corporate social responsibility disclosure as a moderating variable. The analysis was conducted on 44 manufacturing companies listed on the Indonesia Stock Exchange (IDX) selected through purposive sampling from 2014 up to 2019 so that 264 observations were obtained. This study uses two multiple-linear regression models with panel data. This study finds that managerial ability is negatively associated with tax aggressiveness. Meanwhile, accrual earnings management is positively associated with tax aggressiveness, while real earnings management is not associated with tax aggressiveness. The results also suggest that corporate social responsibility disclosure strengthens the negative association between managerial abilities and tax aggressiveness but fails to moderate the association between real earnings management and accrual earnings management with tax aggressiveness. This study shows that the Indonesian Tax Authority should formulate tax policies and incentives to stimulate companies to be more involved in sustainable activities and make excessive social responsibility disclosure