Determinants of Tax Avoidance in Indonesian Banking: The Role of Leverage, Profitability, and Asset Efficiency
Keywords:
tax avoidance, leverage, profitability, capital intensity, panel dataAbstract
This study investigates how leverage, profitability, and asset efficiency relate to tax avoidance among banking sub-sector firms listed on the Indonesia Stock Exchange from 2021 through 2025, with tax avoidance captured through the Effective Tax Rate (ETR). A purposive sampling procedure applied to 48 Main Board financial-sector firms yielded a final set of 16 banks and 80 panel-year observations. As part of this study's contribution, an asset efficiency ratio—Total Assets scaled by Operating Income—is put forward as a banking-specific adaptation of the capital intensity construct. Panel regression estimation, guided by the Chow and Lagrange Multiplier tests, points to the Common Effect Model (CEM) as the appropriate specification; because heteroscedasticity was detected, robust standard errors were applied in the final estimation. Findings reveal a significant negative association between leverage and tax avoidance, whereas neither profitability nor asset efficiency reaches statistical significance. Collectively, the evidence suggests that banking-sector tax avoidance is not governed by the same determinants documented for manufacturing firms, reinforcing the case for sector-tailored inquiry into tax avoidance behavior.
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