Beyond Financial Reporting: How Accounting Conservatism, Firm Size, and ROA Shape Tax Avoidance Decisions

Abstract

This study aims to examine the effect of accounting conservatism, firm size, and return on assets (ROA) on tax avoidance in consumer non-cyclicals manufacturing companies listed on the Indonesia Stock Exchange during the 2020–2023 period. The study adopts a quantitative approach using a causal associative research design. The sample consists of 32 companies selected through purposive sampling, resulting in 128 observations. The data used are secondary data derived from the companies’ annual financial reports. The dependent variable in this study is tax avoidance, measured using the Cash Effective Tax Rate (CETR), while the independent variables include accounting conservatism, firm size, and ROA. The data analysis technique employs multiple linear regression, accompanied by classical assumption tests and robust estimation using HAC/Newey-West standard errors. The empirical results indicate that accounting conservatism has a positive and significant effect on tax avoidance, suggesting that higher levels of accounting conservatism are associated with increased tax avoidance practices. In contrast, firm size and ROA have a negative and significant effect on tax avoidance, implying that larger firms and more profitable companies tend to engage in lower levels of tax avoidance. Simultaneously, all independent variables significantly affect tax avoidance, with the model explaining 73.03% of the variation in the dependent variable. These findings confirm that tax avoidance behavior is influenced by accounting policies, firm characteristics, and financial performance, which are closely related to monitoring mechanisms and managerial discretion within the framework of agency theory.