The role of sustainability reporting in shareholder perception of tax avoidance

Rudyanto, Astrid and Pirzada, Kashan (2021) The role of sustainability reporting in shareholder perception of tax avoidance. Social Responsibility Journal, 17 (5). pp. 669-685. ISSN 1747-1117

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Abstract

Purpose
The purpose of this study is to examine the moderating effect of sustainability reporting on the relationship between tax avoidance and firm value. This study also examines the moderating effect of sustainability reporting in both environmentally sensitive firms and non-environmentally sensitive firms.

Design/methodology/approach
This research uses moderated panel regression with 596 observations and 734 observations for cash effective tax rate (ETR) and generally accepted accounting principles effective tax rate (GAAP ETR) of firms listed on the Indonesian Stock Exchange between 2014 and 2016. Tax avoidance is measured by both cash ETR and GAAP ETR.

Findings
This paper shows that sustainability reporting moderates the relationship between tax avoidance (GAAP ETR) and firm value. The results show that GAAP ETR has a negative association with firm value in non-environmentally sensitive firms and a positive association with firm value in environmentally sensitive firms. Consequently, the sustainability report alters only the effect of GAAP ETR on firm value in non-environmentally sensitive firms. The results imply that, unlike environmentally sensitive firms, non-environmentally sensitive firms need sustainability reporting to reduce the reputational costs of tax avoidance.

Originality/value
How shareholders view tax avoidance remains unclear; research on this topic often fails to produce a uniform result. The present research fills this gap by using the existence of sustainability reporting as proof of companies’ ethical motivations to moderate the association of tax avoidance and firm value, which has not been discussed in previous research.Astrid Rudyanto

Item Type: Article
Identification Number: 10.1108/SRJ-01-2020-0022
Dates:
Date
Event
28 May 2020
Accepted
27 July 2021
Published Online
Subjects: CAH00 - multidisciplinary > CAH00-00 - multidisciplinary > CAH00-00-00 - multidisciplinary
CAH17 - business and management > CAH17-01 - business and management > CAH17-01-08 - accounting
Divisions: Faculty of Business, Law and Social Sciences > College of Accountancy, Finance and Economics
Faculty of Business, Law and Social Sciences > College of Business, Digital Transformation & Entrepreneurship
Depositing User: Kashan Pirzada
Date Deposited: 08 May 2024 13:32
Last Modified: 20 Jun 2024 12:05
URI: https://www.open-access.bcu.ac.uk/id/eprint/15430

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