Academy of Strategic Management Journal (Print ISSN: 1544-1458; Online ISSN: 1939-6104)


Association of Political Connections and Executive Compensation with Tax Aggressiveness

Author(s): Alicia Karina Limawal, Eko Budi Santoso, Stanilaus Adnanto Mastan

Tax Aggressiveness is one of the important determinants of low tax ratio in Indonesia. The large number of taxpayers participating in the tax amnesty program indicates the high practice of tax aggressiveness that has occurred. This study aims to examine political connection associations and executive compensation for company tax aggressiveness. Political connections are measured using dummy variables, executive compensation is measured using natural logarithms of total compensation received for a year, and tax aggressiveness is measured using the GAAP ETR proxy, ETR Cash, and Current ETR. The research data was taken from the annual reports of companies in the manufacturing sector for the period of 2015-2017 and produced 315 observations. The analysis in this study uses multiple regression and gives results that there is a positive association between political connections and executive compensation with the company's Effective Tax Rate. This indicates that companies with political connections and high executive compensation tend to be more compliant or avoid tax aggressiveness.

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