Tax aggressiveness and sustainable income smoothing: The moderating of independent commissioner

Abstract

This study aims to empirically investigate the influence of tax aggressiveness on the probability of sustainable income smoothing. Furthermore, it explores how the presence of independent commissioners moderates this relationship. The analysis is based on a sample of 49 manufacturing firms listed on the Indonesia Stock Exchange during the period 2021–2023, selected through a purposive sampling technique. Logistic regression was employed to assess the research hypotheses. The empirical findings confirm that tax aggressiveness significantly increases the likelihood of sustainable income smoothing. Additionally, the results demonstrate that independent commissioners can attenuate the effect of tax aggressiveness on income smoothing, highlighting their critical role in corporate governance mechanisms. Firms exhibiting aggressive tax behavior appear to engage in income smoothing as a strategic approach to maintain earnings stability and support long-term sustainability objectives. Companies engaged in tax aggressiveness may exhibit income-smoothing behaviors, and independent commissioners, as part of corporate governance mechanisms, can mitigate the impact of tax aggressiveness on the likelihood of such practices. This study offers valuable insights for regulatory bodies such as the Financial Services Authority (OJK) in formulating governance-related policies. Strengthening the role and effectiveness of independent commissioners may help mitigate earnings management associated with tax avoidance strategies.