DOES CORPORATE TAX AGGRESSIVENESS MATTER IN GOOD CORPORATE GOVERNANCE-CORPORATE FINANCIAL PERFORMANCE RELATIONSHIP? EVIDENCE FROM INDONESIA

This study aims to investigate the direct impact of good corporate governance on corporate financial performance, and, if so, whether the relationship is mediated by corporate tax aggressiveness. This issue is crucial for the Indonesian banking companies because since the year of 2011, management of banking companies have the obligation to implement and report their corporate governance. This study is designed as quantitative research employing the structural equation model. A mediation research model is developed to test the mediation effect of corporate tax aggressiveness on corporate governance and financial performance relationship. The sample is derived from the publicly listed banking firms on the Indonesia Stock Exchange (IDX) for the period of 2012-2017 resulting 208 observable empirical data. This study provides empirical evidence that corporate governance has a direct effect on financial performance of publicly listed banks on the IDX. Further analysis reveals that tax aggressiveness mediates the relationship between corporate governance and financial performance. This implies that tax aggressiveness might be one of strategies for banking companies to minimize tax burden in order to increase profit. This study contributes to the growing research exploring tax aggressiveness, especially in banking companies. This study explores the use of tax aggressiveness as the mediation variable and the use of taxable income as one measure of tax aggressiveness.