The Moderating Role of Firm Size on the Association between Managerial Ability and Tax Avoidance

Arfah Habib Saragih, Mutya Nurmala Raya, Adang Hendrawan


Changes in taxation policies generate uncertainty for companies that can potentially encourage companies perform more aggressive tax planning. Aggressive tax planning can lead to tax avoidance. This study aims to investigate the effect of managerial ability, firm size, and the interaction of managerial ability with firm size on corporate tax avoidance practices. The study used quantitative method, with panel data linear regression model, random effects method, with a time period of 2009-2019. The results of this study indicate that managerial ability, firm size, and its interaction have a significant impact on corporate tax avoidance. This research is expected to contribute in enriching the literature on the effect of managerial ability on tax avoidance, particularly in Indonesia.


Company Performance; Company Size; Managerial Ability; Tax Avoidance.

Full Text:



A. Hong, H., Lobo, G. J., & Ryou, J. W. (2019). Financial market development and firm investment in tax avoidance: Evidence from credit default swap market. Journal of Banking and Finance, 107.

Akbari, F., Salehi, M., & Bagherpour Vlashani, M. A. (2018). The effect of managerial ability on tax avoidance by classical and Bayesian econometrics in multilevel models: Evidence of Iran. International Journal of Emerging Markets, 13(6), 1656–1678.

Andreou, P. C., Karasamani, I., Louca, C., & Ehrlich, D. (2017). The impact of managerial ability on crisis-period corporate investment. Journal of Business Research, 79(May), 107–122.

Armstrong, C. S., Blouin, J. L., Jagolinzer, A. D., & Larcker, D. F. (2015). Corporate governance, incentives, and tax avoidance. Journal of Accounting and Economics, 60(1), 1–17.

Baik, B., Farber, D. B., & Lee, S. S. (2011). CEO ability and management earnings forecasts. Contemporary Accounting Research, 28(5), 1645–1668.

Bradshaw, M., Liao, G., & Ma, M. (Shuai). (2019). Agency costs and tax planning when the government is a major Shareholder. Journal of Accounting and Economics, 67(2–3), 255–277.

Brockman, P., Lee, H. S. G., & Salas, J. M. (2016). Determinants of CEO compensation: Generalist-specialist versus insider-outsider attributes. Journal of Corporate Finance, 39, 53–77.

Cen, L., Maydew, E. L., Zhang, L., & Zuo, L. (2017). Customer–supplier relationships and corporate tax avoidance. Journal of Financial Economics, 123(2), 377–394.

Chan, K. H., Mo, P. L. L., & Zhou, A. Y. (2013). Government ownership, corporate governance and tax aggressiveness: Evidence from China. Accounting and Finance, 53(4), 1029–1051.

Chang, Y. Y., Dasgupta, S., & Hilary, G. (2010). CEO ability, pay, and firm performance. Management Science, 56(10), 1633–1652.

Chay, J. B., & Suh, J. (2009). Payout policy and cash-flow uncertainty. Journal of Financial Economics, 93(1), 88–107.

Chen, Shimin, Sun, Z., Tang, S., & Wu, D. (2011). Government intervention and investment efficiency: Evidence from China. Journal of Corporate Finance, 17(2), 259–271.

Chen, Shuping, Chen, X., Cheng, Q., & Shevlin, T. (2010). Are family firms more tax aggressive than non-family firms? Journal of Financial Economics, 95(1), 41–61.

Chen, Shuping, Huang, Y., Li, N., & Shevlin, T. (2018). How does quasi-indexer ownership affect corporate tax planning? Journal of Accounting and Economics, 67(2–3), 278–296.

Chen, Shuping, Huang, Y., Li, N., & Shevlin, T. (2019). How does quasi-indexer ownership affect corporate tax planning? Journal of Accounting and Economics, 67(2–3), 278–296.

Chen, X., Lee, C. W. J., & Li, J. (2008). Government assisted earnings management in China. Journal of Accounting and Public Policy, 27(3), 262–274.

Cheung, K. T. S., Naidu, D., Navissi, F., & Ranjeeni, K. (2017). Valuing talent: Do CEOs’ ability and discretion unambiguously increase firm performance. Journal of Corporate Finance, 42, 15–35.

Custódio, C., Ferreira, M. A., & Matos, P. (2013). Generalists versus specialists: Lifetime work experience and chief executive officer pay. Journal of Financial Economics, 108(2), 471–492.

Darma, R., Tjahjadi, Y. D. J., & Mulyani, S. D. (2018). PENGARUH MANAJEMEN LABA , GOOD CORPORATE GOVERNANCE, DAN RISIKO PERUSAHAAN TERHADAP TAX. Jurnal Magister Akuntansi Trisakti, 5(2), 137–164.

Demerjian, Lev, B., & McVay, S. (2012). Quantifying managerial ability: A new measure and validity tests. Management Science, 58(7), 1229–1248.

Demerjian, P. R., Lev, B., Lewis, M. F., & McVay, S. E. (2013). Managerial ability and earnings quality. Accounting Review, 88(2), 463–498.

Duan, T., Ding, R., Hou, W., & Zhang, J. Z. (2018). The burden of attention: CEO publicity and tax avoidance. Journal of Business Research, 87(March 2017), 90–101.

Edwards, A., Schwab, C., & Shevlin, T. (2016). Financial constraints and cash tax savings. Accounting Review, 91(3), 859–881.

Gabaix, X., & Landier, A. (2008). Why has CEO pay increased so much? Quarterly Journal of Economics, 123(1), 49–100.

Gallemore, J., & Labro, E. (2015). The importance of the internal information environment for tax avoidance. Journal of Accounting and Economics, 60(1), 149–167.

Graham, J. R., Hanlon, M., Shevlin, T., & Shroff, N. (2014). Incentives for Tax Planning and Avoidance: Evidence from the field. Accounting Review, 89(3), 991–1023.

Graham, J. R., Harvey, C. R., & Puri, M. (2013). Managerial attitudes and corporate actions. Journal of Financial Economics, 109(1), 103–121.

Hanlon, M., & Heitzman, S. (2010). A review of tax research. Journal of Accounting and Economics, 50(2–3), 127–178.

Hong, H. A., Lobo, G. J., & Ryou, J. W. (2019). Financial market development and firm investment in tax avoidance: Evidence from credit default swap market. Journal of Banking and Finance, 107.

Huang, H., Sun, L., & Zhang, J. (2017). Environmental uncertainty and tax avoidance. Advances in Taxation, 24, 83–124.

Huang, X. (Sharon), & Sun, L. (2017). Managerial ability and real earnings management. Advances in Accounting, 39(August), 91–104.

Huseynov, F., & Klamm, B. K. (2012). Tax avoidance, tax management and corporate social responsibility. Journal of Corporate Finance, 18(4), 804–827.

Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3, 305–360.

Ke, B., Rui, O., & Yu, W. (2012). Hong Kong stock listing and the sensitivity of managerial compensation to firm performance in state-controlled Chinese firms. Review of Accounting Studies, 17(1), 166–188.

Koester, A., Shevlin, T., & Wangerin, D. (2017). The role of managerial ability in corporate tax avoidance. Management Science, 63(10), 3285–3310.

Lee, K. Y., & Yoon, S. M. (2020). Managerial ability and tax planning: Trade-off between tax and nontax costs. Sustainability (Switzerland), 12(1).

Lee, S., Upneja, A., Özdemir, Ö., & Sun, K. A. (2014). A synergy effect of internationalization and firm size on performance: US hotel industry. International Journal of Contemporary Hospitality Management, 26(1), 35–49.

Li, X., Cai, G., & Luo, D. (2020). GDP distortion and tax avoidance in local SOEs: Evidence from China.

Lun, Y. H. V., & Quaddus, M. A. (2011). Firm size and performance: A study on the use of electronic commerce by container transport operators in Hong Kong. Expert Systems with Applications, 38(6), 7227–7234.

Mills, L., Erickson, M. M., & Maydew, E. L. (1998). Investments in tax planning. Journal of the American Taxation Association, 20(1), 1–20.

Mironov, M. (2013). American Finance Association Taxes , Theft , and Firm Performance. The Journal of Finance, 68(4), 1441–1472.

Mizutani, F., & Nakamura, E. (2014). Managerial incentive, organizational slack, and performance: Empirical analysis of Japanese firms’ behavior. Journal of Management and Governance, 18(1), 245–284.

Nurfauzi, R., & Firmansyah, A. (2018). Managerial Ability, Management Compensation, Bankruptcy Risk, Tax Aggressiveness. Media Riset Akuntansi, Auditing & Informasi, 18(1), 75.

Park, J., Ko, C. Y., Jung, H., & Lee, Y. S. (2016). Managerial ability and tax avoidance: evidence from Korea. Asia-Pacific Journal of Accounting and Economics, 23(4), 449–477.

Petrou, A. P., & Procopiou, A. (2016). CEO Shareholdings and Earnings Manipulation: A Behavioral Explanation. European Management Review, 13(2), 137–148.

Rego, S. O., & Wilson, R. (2012). Equity Risk Incentives and Corporate Tax Aggressiveness. Journal of Accounting Research, 50(3), 775–810.

Robinson, J. R., Sikes, S. A., & Weaver, C. D. (2010). Performance measurement of corporate tax departments. Accounting Review, 85(3), 1035–1064.

Susanti, M. (2017). Corporate Social Responsibility, Size And Tax Avoidance. International Journal of Economic Perspectives, 11(1), 1639–1650.

Tang, T., Mo, P. L. L., & Chan, K. H. (2017). Tax collector or tax avoider? An investigation of intergovernmental agency conflicts. Accounting Review, 92(2), 247–270.

Taylor, G., Richardson, G., & Al-Hadi, A. (2018). Uncertain tax benefits, international tax risk, and audit specialization: Evidence from US multinational firms. International Journal of Auditing, 22(2), 230–248.

Wang, G., Holmes, R. M., Oh, I. S., & Zhu, W. (2016). Do CEOs Matter to Firm Strategic Actions and Firm Performance? A Meta-Analytic Investigation Based on Upper Echelons Theory. Personnel Psychology, 69(4), 775–862.

Wang, S., & Chen, S. (2012). The Motivation For Tax Avoidance in Earnings Management. International Conference on Engineering and Business Management, 447–450.

Wu, L., Wang, Y., Luo, W., & Gillis, P. (2012). State ownership, tax status and size effect of effective tax rate in China. Accounting and Business Research, 42(2), 97–114.



  • There are currently no refbacks.

Creative Commons License

Jurnal ASET (Akuntansi Riset) is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License

View My Stats Visitor