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TAX03 OWNERSHIP CHARACTERISTICS, CORPORATE GOVERNANCE, AND TAX AGGRESSIVENESS

Dewi Kartika Sari Universitas Indonesia Dwi Martani Universitas Indonesia

Field of Research : Taxation

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ABSTRACT This study analyzes the links between family ownership, corporate governance, and tax aggressiveness. It also examines the mediating effect of corporate governance to the link of family ownership and tax aggressiveness. Examination was conducted for manufacturing firms which registered in Indonesian Stock Exchange for year 2005-2008. Although it failed to find significant association between family ownership, corporate governance and tax aggressiveness, this study has given an early description that family firm in Indonesia tend to have higher tax aggressiveness than non-family firm. Corporate governance relative has negative relation with tax aggressiveness. And the link between family ownership and tax aggressiveness is mediated by corporate governance, which mediating effect is negative.

Keywords: Ownership Characteristic, Family Ownership, Corporate Governance, Tax Aggressiveness

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1. INTRODUCTION Income tax that paid by a firm to government is the process of wealth transfer from company side (especially the owners) to the government, so it could be stated that the payment of income tax is a cost for the company and owner itself. Hence, the owner of company is assumed will have a preference for corporate management to be aggressive in taxation (Chen et al. 2010). Tax aggressive is the action designed to reduce taxable income with appropriate tax plan, which is classified or unclassified as a tax evasion (Frank et al. 2009). Although not all of the actions committed were against the rules, but the more a firm utilizes them, then it would be considered as more aggressive. The existence of an argument which states that tax will constitute a cost for a company and its owner would not instantly render the company to take tax aggressive action. This is cause of tax aggressive action can generate other additional cost, which is a cost as result of agency problem. Agency problem is not always in same level for each company. Chen et al. (2010) mentioned that level of tax aggressiveness in family firms compared to non family firms is depend on effect of benefits or the cost arise from those tax aggressiveness toward founding family of the firm (family owner), or as consequence to manager persons in non family firm. Chen et al. (2010) showed that apparently tax aggressiveness level of family firm is less significant than non family firm. This is happen because family owners is seemed willing to pay higher tax cost, rather than to pay tax penalties and face possibilities of firm’s reputation damage as consequence from audit by tax officials. Study of Chen et al. (2010) which indicated that non family firms had higher tax aggressiveness level than family firms, showing that this situation probably happen because Organized by : Department of Accounting FEUI Center For Accounting Development FEUI Post Graduate Program in Accounting FEUI Master in Accounting Program FEUI Profession Education Program in Accounting FEUI

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of an agency problem occurred more in non family firms. Once the ownership and management are separated, inefficient process of job contract and control occurs. This inefficiency will create a chance to manager for performing opportunistic actions, and bring out corporate governance problems (Desai and Dharmapala 2007). Connection between tax and corporate governance has frequently been studied by number of researchers, such as Desai and Dharmapala (2006), Hanlon and Slemrod (2009), and Sartori (2009). Research conducted by Desai and Dharmapala (2006) uncover that connection between incentive compensation with tax evasion is negative. This negative relation mostly occurs in corporations with low governance level, which opportunism is assumed as dominant factor in managerial. Hanlon and Slemrod (2009) examined how the market responded to the news of tax evasion actions by corporation, this research showed that market countered negatively to the news. Nevertheless some variances of reaction will be more positive to corporation with better governance. Sartori (2009) in his research revealed that corporate governance has positive influence in level of corporate tax obedience, thus it will minimize tax aggressiveness. There are researches examine the influence of family ownership factor and corporate governance practice in Indonesia (see Siregar 2005, Aditomo 2005, and Hermawan 2009). However, based on study of literature, there is no research which study comprehensively of family ownership and corporate governance influenced on tax aggressiveness. Therefore this research wants to examine how the influence of family ownership and corporate governance practice on tax aggressiveness of corporations in Indonesia.

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More specified, it will examine the influence of good corporate governance practice to the relation of corporate ownership characteristic and tax aggressiveness. This research differs with previous research because of; using sample of public firms in Indonesia, this research links research of Chen et al. (2010) with some hypothesis examined by Desai and Dharmapala (2006) and Yin and Cheng (2004). Refers to comprehensive literatures, then some new things existed in this research are: (1) examining the tax aggressiveness level of public firms in Indonesia (especially manufactured industries); (2) examining the interaction between corporate governance and tax; and (3) using the average tax planning as addition of alternative measuring to tax aggressive actions. 2. Theoretical Framework and Hypothesis Development 2.1.

Agency Problem Any separation between owners and corporate management can lead to problems,

for example manager possibilities to perform actions which inappropriate with principal interests or needs. These emerging problems are commonly called as agency problems (Jensen and Meckling 1976). Agency problems are not just happened between principal and management, but also occur between majority shareholders and minority shareholders. Arifin (2003) found that if there were minority ownership in firm, then it will lead to new agency problems, the conflict between majority shareholders and minority shareholders. 2.2

Tax Aggressiveness Definition of tax aggressiveness in this research refers to definition of tax

aggressive used by Frank et al. (2009), which is an action purposed to reduce taxable Organized by : Department of Accounting FEUI Center For Accounting Development FEUI Post Graduate Program in Accounting FEUI Master in Accounting Program FEUI Profession Education Program in Accounting FEUI

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income through tax planning as well as using methods that classified or unclassified as tax evasion. Although, not all of the actions committed were against the rules, more multiple methods used by company will make a company is being assumed to be more aggressive. Hite and McGill (1992) and Murphy (2004) also state that an aggressiveness of tax reporting is a situation when company conduct particular tax policy and one day it might be a possibility that tax policy will not being audited or disputed by law, however this action still has risks potential of uncertain final resolution (of law obedience or disobedience). 2.3

Advantages and Disadvantages of Tax Aggressive When decide to conduct a tax aggressive action, decision maker (manager) will

make calculation of advantages or disadvantages of their decision. At least three advantages of tax aggressive action that will be elaborated here. (1) Advantage of tax efficiency that paid by corporate to the authority, thus cash benefit for owners or shareholders becomes larger. (2) Advantage (direct or indirect) to manager for obtaining compensations from owners and shareholders for their tax aggressive actions. (3) Advantage of opportunities for manager to perform rent extraction. (Chen et al. 2010). In other side, disadvantages of tax aggressive actions are possibilities to get sanction or penalties from tax officials, and decline of company’s stock price. Probability of stock price going down, is caused by others shareholder recognize that tax aggressive actions organized by manager is purposed for rent extraction (Desai and Dharmapala, 2006)

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2.4

The Effect of Corporate Ownership Characteristic and Agency Problem to Tax Aggressive For determining whether tax aggressive action of family firm is higher or lower

than non family firm, is depend on how high the gain or loss tribute to family member who involved in firm management (family owners) or managers in non family firm. Compare to managers in non family firm, family owners have larger shares, longer investment periods, and have higher concern to corporate goodwill and reputations. Therefore, Chen et al. (2010) stated that advantage and cost of tax aggressive action will be higher for family firms. Research of Chen et al. (2010) which is conducted to detect whether family firm more aggressive in their tax action rather than non family firms; shows that for the companies listed in S&P 1500 index (1996-2000 period), family firms have tax aggressiveness level less than non family firms. This matter is estimated occurs as compare to non family firms, family owners are willing to pay higher tax cost, rather than to pay tax penalties and facing possibilities of firm’s reputation damage after audit by tax officials. Refers to Chen et al. (2010) research, then first hypothesis is formulated in alternative form as follows: H1 :

family ownership gives negative influence to tax aggressive action.

2.5

Corporate Governance and Taxation In international level, interaction between corporate governance and tax has starting

to be observed. Acknowledged from Schon (2008), corporate governance regulations have became tools for authorities to fight tax evasion by corporations.

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Friese et al. (2008) stated that tax and corporate governance can relate in some aspects, and this interaction can be in one or two ways. In Indonesia, example of tax regulations which is can influence the corporate governance is Ministry of Finance RI regulation No 43/PMK.03/2008 (DJP-2008). This regulation mentioned that tax payer can use the book value in business expansion if tax payer or business unit as result of that expansion will conduct initial public offering. From these regulations is seemed that government encourage the corporations to be more transparent with becoming public corporations. While sample of corporate governance principle that can influence corporate taxation decision making is the principle of openness and transparency. With this information transparent, then it is expected that corporation will tend to take free risk taxation actions. Therefore in this research is being formulated second hypothesis in alternative form as follows: H2 :

Corporate governance gives negative influence to corporate tax aggressive actions.

2.6

Corporate Governance and Tax Aggressiveness of Family Firm Research conducted by Desai and Dharmapala (2006) is one model of empirical

research that shows corporate governance influence to tax. Desai and Dharmapala (2006) was using company data from S&P Compustat Database (period 1993-2001), has examined the

influence

of

corporate

governance

practice

to

the

connection

between

compensation/incentive of management and tax evasion action. Answering their research questions, Desai and Dharmapala (2006) divide research sample into two groups (well governed company and poorly governed) based on level of corporate governance practice for each companies. From the test, Desai and Dharmapala Organized by : Department of Accounting FEUI Center For Accounting Development FEUI Post Graduate Program in Accounting FEUI Master in Accounting Program FEUI Profession Education Program in Accounting FEUI

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(2006) find that the influence of management compensation/incentive to corporate tax evasion action is differs between company with good corporate governance practice and bad

corporate

governance

practice.

Connection

between

management

compensation/incentive with tax evasion action gives more negative effect to company with bad level of corporate governance practice. Chen et al. (2010) research shows that level of family firm tax aggressiveness is less than non family firm, and result of the research by Desai and Dharmapala (2006) which proves that practice of corporate governance good or bad can make difference of influence of a determinant to tax evasion action. Hence, this research proposes third hypothesis in alternative form as follows: H3 :

Influence of family ownership to tax aggressive action of well governed company will be lower than poorly governed company. 3. Research Methodology

3.1.

Data Source and Sample Selection Samples in this research are entire public companies which are classified as

manufacture industries listed in ICMD directory (Indonesian Capital Market Directory) in period of 2005 – 2008. Index data of Corporate Governance is sourced from Research Report on Indonesian Corporate Governance Scorecard (IICD), 2007 and 2009), financial data of companies is obtained from BEI website, www.idx.co.id as 11 May 2010, price of stock is obtained from OSIRIS data center, and corporate ownership data is gathered from ICMD. Available data will be analyzed, if a company is included as below category, then such company will be excluded from sample. Next is category as discussed: (1) Company Organized by : Department of Accounting FEUI Center For Accounting Development FEUI Post Graduate Program in Accounting FEUI Master in Accounting Program FEUI Profession Education Program in Accounting FEUI

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with incomplete data; or company accomplishes no activity in certain year. (2) Company with negative income, because this will create distortion on score of effective tax rate (Richardson and Lanis 2007; Zimmerman 1983), (3) Company with score of effective tax rate more than one, cause this matter will create problem in model estimation (Gupta and Newberry 1997). 3.2

Data Processing and Hypothesis Testing To recognize difference of behavior trend of tax aggressive action over group of

company sample, then this research conducts variant test using ANOVA analysis. While for hypothesis testing, this research will conduct regression test using panel data model. 3.3

Empirical Model and Research Variables Purpose of empirical model which will be described as follows is meant for testing

some hypothesis of researches as explained in previous section. Follow is the tested empirical model:

TaxAggit is measured using effective tax rate (ETRit), cash effective tax rate (CETRit), book-tax difference (BTD_MPit), residual book-tax difference (BTD_DDit), and average of corporate tax planning level (

); FAMILYit is dummy variable, has

score 1 if proportion of family ownership > 50% and score 0 if on the contrary; CGit is dummy variable, whereas it has score 1 if index score CG > 0,6 and score 0 on the opposite; ROAit is Return on assets for company i, year t, is calculated with divide

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operating income to total assets (t-1); LEVit is leverage for company i, year t, is calculated with divide long term debt to total asset (t-1); NOLit has score 1 if company has loss carry forward at beginning of year t; NOLit is change of loss carry forward score for company i, year t, is divided with value of total asset (t-1); PPEit is value of property, plant, and equipment for company i, year t, is divided to value of total asset (t-1); SIZEit is natural logarithm score of market value of equity for company i, in beginning of year t, MBit is the market-to-book ratio for company i, in beginning of year t, is calculated with divide market value of equity to book value of equity; BTDit is book-tax difference, for company i, year t1; 3.4

Measurement of Tax Aggressiveness To triangulate the result, this research uses five measurements in calculating level

of tax aggressive action. For ease of read, calculation detail of each measurement is presented in appendix 1. ETR is used because it can reflect fixed difference between book revenue calculations with fiscal revenue (Frank et al. 2009). While CETR is used because it is expected to identify corporate tax planning aggressiveness which is performed using fixed difference as well as temporary difference (Chen et al. 2010). To obtain triangulation, this research uses three types book-tax difference, such as Book-Tax

Difference

Manzon-Plesko

(BTD_MP),

Book-Tax

Difference

Desai-

Dharmapala (BTD_DD), and Tax Planning (TAXPLAN). According to Desai and Dharmapala (2006), book-tax difference can come out because of existence of tax planning activity and revenue management, and then residual value from regression value of booktax difference and total accrual value are expected to be pure as reflection of tax planning Organized by : Department of Accounting FEUI Center For Accounting Development FEUI Post Graduate Program in Accounting FEUI Master in Accounting Program FEUI Profession Education Program in Accounting FEUI

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activity. While value of tax planning (TAXPLAN) is used for explaining level of tax subsidize prevails. (Yin and Cheng 2004). If level of family corporate tax aggressive is higher than non family corporate, then this research expects variable coefficient FAMILY (β1) has negative value if the calculation of tax aggressive is using effective tax rates (ETRit and CETRit), and has positive value if using book-tax differences ( 3.5.

,

,and

).

Independent Variable This research is using family definition as used by Arifin (2003), that is all

individual and corporate with registered ownership (own > 5% is must registered), not public company, state, financial institution, and public (individual with no necessity to register their ownership). While for measuring Corporate Governance (CG) practice, this research uses CG index released by IICD (Indonesian Institute for Corporate Directorship). Because the evaluation of Indonesian Corporate Governance Scorecard for year 2009 reports the average corporate governance performance for observed company resulting score of 64.96%, then to determine a company includes in well governed category or poorly governed, researcher use own justification whereas company with index value of CG > 60% will include into well governed category, while company with value of CG < 60% will be categorized as poorly governed company. 3.6

Control Variable To control possibility of influence of profitability and company leverage, then this

research will include variable of Return on Assets (ROA), leverage (LEV), fiscal loss compensation (NOL), and change of sum fiscal loss compensation (NOL) into tested Organized by : Department of Accounting FEUI Center For Accounting Development FEUI Post Graduate Program in Accounting FEUI Master in Accounting Program FEUI Profession Education Program in Accounting FEUI

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regression model. Anderson and Reeb (2003) stated that company with better profitability and company with less fiscal loss compensation value, is seemed to has higher effective tax rates (ETRs). While for leverage variable, interest cost will reduce tax cost, then higher value of company long term obligation so value of ETRs of company will be lower. (Richardson and Lanis 2007). PPE Variable is also controlled because of the difference between depreciation method for commercial report and fiscal make the value of book-tax difference for family company with fixed asset investment type (capital-intensity) will differs from company with inventory-intensity. (Manzon and Plesko 2002). Richardson and Lanis (2007, Siegfried (1972) stated that larger company will lead to lower ETRs, this was caused by larger company is better in using its resource to form a good tax planning (political power theory). However, somewhat company is not always able to use its power to perform tax planning, because of the barrier of the possibility to become attention or target of regulator’s policy – Political Cost Theory (Watts and Zimmerman 1986). Therefore size of the company (SIZE) is controlled. In other side, level of company’s business growth (Proxy with market-to-book ratio – MB) is also controlled because Manzon and Plesko (2002) state that growing company prefers to invest in tax-favored assets. Growing company can freely choose its type of investment, contrary to company with limited budget. For avoiding the influence of business condition to behavior tendency of investment which is conducted by company, this research controls lagged book-tax difference (value of book-tax difference year t-1)

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4. Data Analysis 4.1.

Sample In ICMD year of 2005, 2006, 2007, and 2008 is recognized that there were only 135

manufactured companies which are still listed in period of 2005-2008. Observation period is along four year and based on sample selection, thus total 160 samples of companies are obtained (40 companies, 4 periods). Detailed sample selection can be seen on Appendix 2 Table 1. 4.2.

Descriptive Statistical Analysis

4.2.1. Measurement of Tax Aggressive Comparison average value (mean) from each measurement of tax aggressive action (ETR, CETR, BTD_MP, BTD_DD, and TAXPLAN) for each group sample (family firm and non family firm), and between well governed company and poorly governed can be seen on Appendix 2 (table 2). In appendix 2 (Table 2, Panel A) is seemed that mean score of entire measurement of tax aggressive action (except ETR) between sample group of family firm and non family firm is differs significantly. For effective tax rates (ETR and CETR), mean score of family firm is lower than non family firm. While mean score of book-tax difference of family firm is higher than non family firm. This gives preliminary indication that level of tax aggressive action of family firm is higher than non family firm. In appendix 2 (Table 2, Panel B) shows difference of mean score of tax aggressive action between well governed company and poorly governed company, it indicates that companies with good CG practice tend to have lower tax aggressive action than companies with bad CG practice. This matter is figured in score of ETR (CETR) for well governed Organized by : Department of Accounting FEUI Center For Accounting Development FEUI Post Graduate Program in Accounting FEUI Master in Accounting Program FEUI Profession Education Program in Accounting FEUI

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companies which are exceed 0,03 (0,07) than poorly governed companies. This prediction is also supported by score of BTD_MP (BTD_DD ) of well governed companies which are less 0,051 (0,05) than poorly governed companies. Expect TAXPLAN, average score of tax aggressive action between both samples is seemed differs significantly. In sensitivity test also has been accomplished two additional variance test over average score of tax aggressive action, that is (1) between family firm with good CG practice (well-governed) and family firm with bad CG practice (poorly-governed), and (2) between well governed non family firm and poorly governed non family firm. Test result shows support to the result in Appendix 2 (table 2, Panel B), that is the good corporate governance practice will weaken company’s tax aggressive action (sensitivity test result will not be showed in this paper). Appendix 2 (table 2, Panel C) shows descriptive statistic of measurement of tax aggressive action for entire company samples. That panel shows in overall that the score of tax aggressive action of sampling companies are relatively unchanged. This is seemed from standard deviation score which is relatively small. Appendix 2 (Table 2, Panel D) shows the correlation among five measurements tax aggressive action, high level family ownership company and corporate governance practice. Except CETR, all coefficient correlation show score which minimum significant at level of 5%, seemed correlation between effective tax rates is positive, and correlation measurement of effective tax rate and measurement of book-tax difference is negative. Correlation score between variable BTD_MP and BTD_DD is very high, but this can be accepted because score of BTD_DD is residual score from regression of BTD_MP with

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total accrual score Healy (1985). Use of various measurement of tax aggressive action is expected to strengthen result of the test. The connection between family ownership company and variable of tax aggressive action is almost all show significant score. The correlation with effective tax rates (ETR and CETR) shows negative trend, while correlation with book-tax difference (BTD_MP, BTD_DD and TAXPLAN) shows positive trend. Also in Appendix 2 (Table 2, Panel D), the connection of corporate governance practice with effective tax rates (ETR and CETR) shows a positive trend with significant score, and the connection of corporate governance with book-tax difference (BTD_MP and BTD_DD) has a negative trend with significant score too. From trend of coefficient correlation, connection between tax aggressive action with variable of family ownership and corporate governance is inline with preliminary prediction. That is the family ownership related positively with tax aggressive action, and practice of corporate governance in contrary related negatively with tax aggressive action. 4.2.2. Characteristic of Company and Control Variable Comparison of descriptive statistic to company characteristic, and control variable of family firms and non family firms can be found in Appendix 2 (Table 3, Panel A). On that panel is seemed that the characteristic, measurement, and level of family firms’s growth and non family firms are not differ significantly. Significant difference is only represented in average score of ROA, whereas average score shows that non family firms have better performance in their operations. In appendix 2 (Table 3, Panel B) is reported about correlation score among independent variables. It is consistent with result in Appendix 2 (Table 3, Panel A), the Organized by : Department of Accounting FEUI Center For Accounting Development FEUI Post Graduate Program in Accounting FEUI Master in Accounting Program FEUI Profession Education Program in Accounting FEUI

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indicator of family firms show negative relation with variable ROA. From Appendix 2 (Table 3, Panel B), although correlation between variable CG and variable CG*FAM is quite high, but value of coefficient correlation among other independent variable is insignificant ( 50% and score 0 if on the contrary.

CGit

= dummy variable, whereas it has score 1 if index score CG > 0,6 and score 0 on the opposite.

ROAit

= Return on assets for company i, year t, is calculated by divide operating income to total assets (t-1).

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LEVit

= Leverage for company i, year t, is calculated with divide long term debt to total asset (t-1).

NOLit

= has score 1 if company has loss carry forward at beginning of year t. Appendix 1(Continued)

NOLit

= Change of loss carry forward score for company i, year t, is divided with value of total asset (t-1).

PPEit

= Value of property, plant, and equipment for company i, year t, is divided to value of total asset (t-1).

SIZEit

= Natural logarithm score of market value of equity for company i, in beginning of year t.

MBit

= The market-to-book ratio for company i, in beginning of year t, is calculated with divide market value of equity to book value of equity.

BTDit

= Book-tax difference, for company i, year t-1.

it

= Error value for individual.

uit

= Error value caused of many individual and many periods.

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Appendix 2: Table Table 1 Sample Selection Primary Sample 40 manufacturing firms listed in ICMD (2005 – 2008)

Firm Year 640

Deducted by sample criteria a. Delisting on 2005 – 2008 b. Close book period other than December 31 c. Non-rupiah currency d. Negative income e. ETR > 1 f. Nilai CETR > 1 Final Sample

100 4 24 220 116 16 (480) 160

Source: Data Processed Appendix 2 (Continued) Table 2 Descriptive Statistics of Tax Aggressiveness Measurement Panel A: Comparison of descriptive statistics of tax aggressiveness measurement between family firms and non-family firms. Firm Groups

N ETR 0,27 0,30

CETR 0,31 0,39

Mean BTD_MP BTD_DD -0,03 0,02 -0,06 -0,01

TAXPLAN Family 68 0,002 Non-family 92 -0,0003 Hasil Uji Beda 160 0,12 0,01** 0,01** 0,01** 0,02** F-test (p-values) Panel B: Comparison of descriptive statistics of tax aggressiveness measurement between well-governed firms and poorly-governed firms. Firm Groups N Mean ETR CETR BTD_MP BTD_DD TAXPLAN Well-governed 126 0,29 0,37 -0,06 -0,01 0,0006 Poorly-governed 34 0,26 0,30 -0,009 0,04 0,003 Hasil Uji Beda 160 0,03* 0,06* 0,00*** 0,00*** 0,49 F-test (p-values) Panel C: Statistic desciptive comparison of tax aggressivess measurement all sample (n = 40 firms, 160 observation). Mean Median Min. Maks Std. Dev. ETR 0,287 0,301 -0,280 0,664 0,093 CETR 0,359 0,314 0,008 0,987 0,192 Organized by : Department of Accounting FEUI Center For Accounting Development FEUI Post Graduate Program in Accounting FEUI Master in Accounting Program FEUI Profession Education Program in Accounting FEUI

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BTD_MP BTD_DD TAXPLAN Panel D: Correlatin Matrix (pearson correlation).

-0,046 -0,050 -0,208 0,411 0,075 -0,000 -0,003 -0,163 0,457 0,075 0,001 -0,000 -0,022 0,026 0,007 of tax aggressiveness measurement with family firm and corporate governance

ETR 0,16 (0,05)** -0,48 (0,00)*** -0,48 (0,00)*** -0,32 (0,00) *** -0,12 (0,12) 0,17

CETR BTD_MP BTD_DD TAXPLAN FAM CG

(0,02) ***

CETR

-0,12 (0,13) -0,12 (0,13) -0,10 (0,20) -0,20 (0,01) *** 0,14 (0,06)*

BTD_MP

BTD_DD

TAXPLAN

0,99 (0,00) *** 0,39 (0,00) *** 0,21 (0,01) *** -0,26 (0,001) ***

0,39 (0,00) *** 0,21 (0,01) *** -0,23

0,18 (0,02) *** 0,06

(0,003) ***

(0,41)

ETR (Effective Tax Rates), CETR (Cash Effective Tax Rates), BTD_MP (Book-tax difference ManzonPlesko), BTD_DD (Book-tax difference Desai-Dharmapala) dan TAXPLAN (average of three years firm’s tax planning). FAMILY = 1 if high family owned firm, and 0 if contrary; CG or Well-governed if firm’s CG index > 0,6, and poorly-governed if contrary. Subject in paranthesis showing p-values, where: *** significant in 1%; ** significant in 5%; * significant in 10%. Source: Data Processed

Appendix 2 (continued) Table 3 Statistic Descriptive of Firm Characteristics and Control Variables anel A: Statistic descriptive characteristics comparison of tax aggressiveness measurement between family firms and non-family firms. Family Firms Non-family Firms Differenti al test* N Mean Med. Min. Maks. N Mean Med. Min. Maks. Mean Opportunity to do tax planning and book-tax differences. ROA 68 0,15 0,13 0,04 0,64 92 0,20 0,17 -0,65 0,64 0,03** LEV 68 0,08 0,00 0,00 0,43 92 0,09 0,02 0,00 0,58 0,73 NOL 68 0,24 0,00 0,00 1,00 92 0,17 0,00 0,00 1,00 0,34 DNOL 68 -0,001 0,00 -0,04 0,06 92 -0,01 0,00 -0,41 0,04 0,20 PPE 68 0,36 0,33 0,09 1,29 92 0,35 0,29 0,05 0,97 0,79 Size and Firm’s Growth SIZE 68 11,86 11,66 10,52 13,42 92 12,01 11,90 10,17 14,04 0,25 MB 68 1,70 1,41 -25,54 14,18 92 2,61 1,55 -10,67 21,26 0,15 BTD Persistency BTD 68 -0,024 -0,03 -0,13 0,18 92 -0,02 -0,06 -0,20 1,02 0,73 Organized by : Department of Accounting FEUI Center For Accounting Development FEUI Post Graduate Program in Accounting FEUI Master in Accounting Program FEUI Profession Education Program in Accounting FEUI

The 3rd Accounting & The 2nd Doctoral Colloquium Bridging the Gap between Theory, Research and Practice : IFRS Convergence and Application Faculty of Economics Universitas Indonesia Bali-Indonesia, 27 - 28 Oktober 2010

Panel B: Correlation matrix between independent variables (pearson correlation) FAM CG CG*FAM ROA LEV NOL DNOL PPE SIZE MB CG -0,23 CG*FAM 0,74 0,33 ROA -0,17 0,07 -0,14 LEV -0,03 0,02 0,002 -0,07 NOL 0,08 -0,20 -0,04 -0,26 0,37 DNOL 0,10 0,16 0,07 -0,000 -0,08 -0,30 PPE 0,02 -0,10 -0,11 0,05 0,38 0,16 0,05 SIZE -0,09 0,24 -0,004 0,23 0,22 -0,05 0,04 0,22 MB -0,11 0,17 -0,02 0,39 -0,142 -0,21 0,14 0,08 0,35 BTD -0,03 -0,10 -0,07 -0,13 0,18 0,31 -0,34 0,09 0,08 -0,03 CG = scored 1 if IICD’s corporate governance index > 0,6; ROA = return on assets; LEV = leverage, total loan divided by total asset; NOL = indicator variable of any compensation of loss carry forward; DNOL = changing in compensation of loss carry forward; PPE = fixed asset divide by total asset.; SIZE = Natural logarithm of market value of equity; MB = market to book ratio; BTD = Book-tax difference (BTD_MP) periode t-1. *result of differential test, t-test (p-values), ** signifikan dengan α = 5%. Source: Data Processed.

Appendix 2 (Continued) Table 4Regression Output

Predicted Sign ETR (BTD) Intercept FAMILY

+(-)

CG

+(-)

CG* FAMILY ROA

+(-)

LEV

-(+)

NOL

-(+)

NOL

+(-)

PPE

-(+)

+(-)

ETR 0,71 (0,00) -0,004 (0,91) 0,03 (0,35) -0,01 (0,78) 0,03 (0,59) 0,06 (0,41) -0,06 (0,004)*** -0,01 (0,96) -0,03

Dependent Variables CETR BTD_MP 0,51 (0,06) -0,01 (0,85) 0,09 (0,15) -0,09 (0,27) -0,34 (0,01)*** 0,17 (0,24) -0,02 (0,60) 0,51 (0,23) -0,11

Organized by : Department of Accounting FEUI Center For Accounting Development FEUI Post Graduate Program in Accounting FEUI Master in Accounting Program FEUI Profession Education Program in Accounting FEUI

-0,12 (0,01) 0,02 (0,15) -0,02 (0,16) 0,004 (0,77) -0,27 (0,00)*** 0,04 (0,12) 0,02 (0,00)*** -0,88 (0,00)*** 0,04

BTD_DD

TAXPLAN

-0,07 (0,15) 0,02 (0,14) -0,02 (0,16) -0,005 (0,74) -0,26 (0,00)*** 0,04 (0,10)* 0,03 (0,00)*** -0,88 (0,00)*** 0,04

-0,02 (0,01) 0,01 (0,01)*** 0,002 (0,13) -0,004 (0,27) -0,003 (0,27) 0,01 (0,01)*** 0,01 (0,00)*** 0,06 (0,00)*** -0,00

The 3rd Accounting & The 2nd Doctoral Colloquium Bridging the Gap between Theory, Research and Practice : IFRS Convergence and Application Faculty of Economics Universitas Indonesia Bali-Indonesia, 27 - 28 Oktober 2010

SIZE

-(+)

MB

-(+)

BTD

-(+)

(0,41) -0,04 (0,003)*** -0,01 (0,00)*** -0,06 (0,18) 0,23 5,23

(0,23) -0,01 (0,71) 0,004 (0,34) -0,10 (0,31) 0,07 2,03

(0,01)** 0.008 (0,05)** -0,001 (0,20) 0,04 (0,01)** 0,72 38,41

(0,01)** 0,01 (0,07)* -0,001 (0,22) 0,04 (0,013)** 0,72 38,32

(0,68) 0,002 (0,03)** 0,0002 (0,02)** 0,006 (0,01)*** 0,35 8,79

Adj.R2 F-statistic p value 0,00*** 0,03** 0,00*** 0,00*** 0,00*** (F-statistic) N (perusahaan 160 160 160 160 160 tahun) Tax aggressiveness measured by ETR (Effective Tax Rates), CETR (Cash Effective Tax Rates), BTD_MP (Book-tax difference Manzon-Plesko), BTD_DD (Book-tax difference Desai-Dharmapala) dan TAXPLAN (three years firm’s average tax planning). FAMILY = 1 if high family owned firm, and 0 if otherwise. CG = scored 1 if IICD’s corporate governance index > 0,6; CG*FAMILY = interaction variable which linking family firm and CG indicator.; ROA = return on assets; LEV = leverage, total loan divided by total asset; NOL = indicator variable of any compensation of loss carry forward; NOL = changing in compensation of loss carry forward; PPE = fixed asset divide by total asset; SIZE = Natural logarithm of market value of equity; MB = market to book ratio; BTD = Book-tax difference (BTD_MP) in t-1 period. Nominal in parantheses is p-value of t-statistic where: *** significant in 1%; ** significant in 5%; * significant in 10%. Source: EVIEWS 6 data processed

Appendix 3: Individual Effect Table (Random Effects) No.

ETR

CETR

BTD_MP

BTD_DD

TAXPLAN

1

TBLA

0.048

MTDL

0.197

RDTX

0.053

RDTX

0.053

INTP

0.009

2

GGRM

0.047

ASGR

0.142

RMBA

0.034

RMBA

0.035

RDTX

0.007

3

MTDL

0.043

TSPC

0.109

FAST

0.025

FAST

0.025

FAST

0.007

4

KAEF

0.042

BTON

0.091

AUTO

0.023

AUTO

0.024

AUTO

0.006

5

SCCO

0.039

INTP

0.091

ASGR

0.016

ASGR

0.017

KBLI

0.005

6

INTP

0.036

SOBI

0.061

MRAT

0.011

MRAT

0.011

JPRS

0.003

7

MYOR

0.024

KLBF

0.061

HEXA

0.010

HEXA

0.011

TSPC

0.003

8

DVLA

0.022

AQUA

0.047

LTLS

0.010

LTLS

0.010

ASII

0.003

9

UNTR

0.016

SCCO

0.039

DLTA

0.007

DLTA

0.007

SMAR

0.002

10

AQUA

0.015

TOTO

0.025

JPRS

0.007

JPRS

0.007

ASGR

0.002

11

KBLI

0.012

KAEF

0.023

TSPC

0.006

TSPC

0.006

EKAD

0.002

12

SMSM

0.011

MYOR

0.015

ASII

0.003

CLPI

0.002

DLTA

0.002

13

SMGR

0.011

LMSH

0.014

CLPI

0.002

EKAD

0.001

SMSM

0.002

14

KLBF

0.008

UNVR

0.008

EKAD

0.002

ASII

0.001

MRAT

0.002

15

TOTO

0.006

AKRA

0.005

TBLA

0.001

SMAR

0.001

AKRA

0.001

16

TCID

0.004

SMSM

0.000

SMAR

0.001

TBLA

0.001

RMBA

0.001

Organized by : Department of Accounting FEUI Center For Accounting Development FEUI Post Graduate Program in Accounting FEUI Master in Accounting Program FEUI Profession Education Program in Accounting FEUI

The 3rd Accounting & The 2nd Doctoral Colloquium Bridging the Gap between Theory, Research and Practice : IFRS Convergence and Application Faculty of Economics Universitas Indonesia Bali-Indonesia, 27 - 28 Oktober 2010

17

HEXA

0.003

JPRS

(0.002)

MLBI

0.001

MLBI

0.001

MLBI

0.001

18

SOBI

0.002

DLTA

(0.007)

MERK

(0.001)

MERK

(0.001)

HEXA

0.000

19

MLBI

0.002

MLBI

(0.009)

UNVR

(0.003)

UNVR

(0.003)

MYOR

0.000

20

AKRA

0.002

GGRM

(0.010)

KBLI

(0.004)

KAEF

(0.003)

ARNA

(0.001)

21

LMSH

(0.001)

HEXA

(0.016)

ARNA

(0.004)

KBLI

(0.004)

UNTR

(0.001)

22

LION

(0.003)

UNTR

(0.017)

KAEF

(0.004)

ARNA

(0.004)

SCCO

(0.001)

23

EKAD

(0.003)

MERK

(0.019)

LION

(0.004)

LION

(0.004)

LION

(0.001)

24

ASII

(0.004)

TCID

(0.023)

SCCO

(0.004)

GGRM

(0.004)

UNVR

(0.001)

25

ARNA

(0.007)

RMBA

(0.025)

GGRM

(0.005)

SCCO

(0.004)

MERK

(0.001)

26

TSPC

(0.009)

LTLS

(0.030)

DVLA

(0.006)

DVLA

(0.006)

TCID

(0.001)

27

DLTA

(0.011)

FAST

(0.034)

TCID

(0.006)

TCID

(0.006)

GGRM

(0.002)

28

CLPI

(0.012)

CLPI

(0.036)

SMSM

(0.006)

SMSM

(0.006)

CLPI

(0.002)

29

MRAT

(0.012)

LION

(0.036)

MTDL

(0.007)

SOBI

(0.006)

BTON

(0.002)

30

FAST

(0.013)

SMGR

(0.036)

SOBI

(0.007)

MTDL

(0.007)

KLBF

(0.002)

31

ASGR

(0.014)

EKAD

(0.040)

INTP

(0.007)

INTP

(0.007)

SOBI

(0.003)

32

JPRS

(0.015)

ARNA

(0.041)

MYOR

(0.011)

MYOR

(0.011)

TBLA

(0.003)

Appendix 3 (Continued) 33

MERK

(0.018)

DVLA

(0.044)

LMSH

(0.012)

LMSH

(0.012)

MTDL

(0.003)

34

RDTX

(0.024)

RDTX

(0.048)

BTON

(0.012)

BTON

(0.013)

LTLS

(0.004)

35

BTON

(0.027)

TBLA

(0.049)

UNTR

(0.014)

SMGR

(0.014)

KAEF

(0.004)

36

AUTO

(0.031)

SMAR

(0.065)

SMGR

(0.014)

UNTR

(0.015)

DVLA

(0.005)

37

LTLS

(0.035)

MRAT

(0.066)

AKRA

(0.017)

AKRA

(0.017)

LMSH

(0.005)

38

UNVR

(0.037)

KBLI

(0.075)

AQUA

(0.019)

AQUA

(0.019)

AQUA

(0.005)

39

SMAR

(0.038)

ASII

(0.095)

KLBF

(0.023)

KLBF

(0.022)

SMGR

(0.005)

40

RMBA

(0.077)

AUTO

(0.108)

TOTO

(0.024)

TOTO

(0.025)

TOTO

(0.006)

Mean

(0.000)

0.000

(0.000)

Source: Data processed

Organized by : Department of Accounting FEUI Center For Accounting Development FEUI Post Graduate Program in Accounting FEUI Master in Accounting Program FEUI Profession Education Program in Accounting FEUI

(0.000)

(0.000)