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Military Connections, Corporate Governance, and Corporate Tax Avoidance

Access Status
Open access
Authors
Abdul Wahab, Effiezal
Wardani, Damara Ardelia Kusuma
Harymawan, Iman
Nasih, Mohammad
Date
2024
Type
Journal Article

Metadata
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Citation
Abdul Wahab, E. and Wardani, D.A.K. and Harymawan, I. and Nasih, M. 2024. Military Connections, Corporate Governance, and Corporate Tax Avoidance. Pacific Accounting Review.
Source Title
Pacific Accounting Review
DOI
ISSN
Faculty
Faculty of Business and Law
School
School of Accounting, Economics and Finance
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Abstract

Purpose: This paper aims to investigate the relationship between military connections and tax avoidance in Indonesia. Further, the paper examines whether the relationship between military connections and tax avoidance is impacted by three corporate governance variables: auditor size or Big 4, board size and audit committee independence. Indonesia's settings allow for a unique investigation, as military involvement has been documented.

Design/methodology/approach: This paper uses Indonesia as the research setting because its military forces have a long history of business involvement. The sample includes 1,986 firm-year observations on the Indonesia Stock Exchange from 2010 to 2018. The period signifies the time of significant change post-Suharto to illustrate changes in military reform.

Findings: Military-connected firms recorded a negative relationship with effective tax rates, indicating higher tax avoidance. The authors extend this test by considering three corporate governance variables: Big 4, board size and audit committee independence. They find the corporate governance variables are ineffective in mitigating the positive impact of military-connected firms and corporate tax avoidance. The results remain consistent when performing endogeneity tests.

Originality/value: This paper adds to the extant literature by examining the impact of military connections on tax avoidance. The findings reflect Indonesia's institutional settings depicting military and political connections.