Long Run Corporate Tax Avoidance and Firm Value:
Evidence from Indonesia
Gatot Soepriyanto
International Accounting & Finance Program, Accounting Department, Faculty of Economics and Communication, Bina
Nusantara University, Jakarta, Indonesia
Keywords: Long Run Corporate Tax Avoidance, Firm Value, Risk Minimisation.
Abstract: This study examines the level to which corporate tax avoidance activity is valued by investors in a large
sample of Indonesian firms. The risk minimization perspective of corporate tax avoidance suggest that such
activities, especially aggressive tax strategies may diminish the firm values, as investors consider them as
risky strategies. Under cash flow maximization perspective, however, corporate tax avoidance is considered
as a value-enhancing activity as it may increase firm value through tax saving. Based on a sample consisting
of 1,023 firm-year observations, made up of 244 unique firms over the period 2006-2015, I find that the tax
avoidance strategies – proxied by long run GAAP effective tax rates and cash effective tax rates – are
negatively associated with firm value, which lends credence to the risk minimization motive. My inferences
still hold after controlling year and industry-fixed effect and a propensity score matching (PSM) test.
1. INTRODUCTION
This paper investigates the association between
corporate tax avoidance and firm value in a large
sample of Indonesian firms. The study distinct to
other studies in Indonesian setting based on at least
three reasons. First, a three year (i.e., long run)
corporate tax avoidance measure is used instead of
an annual measure. Previous studies suggest the long
run corporate tax avoidance measures generally
capture different aspects of a firm’s tax avoidance
behavior than the short run measures (e.g., Dyreng et
al., 2008; Guenther et. al., 2016). Specifically,
corporate long run tax avoidance proxies
encapsulate the evolution of firms’ tax avoidance
strategies over a longer horizon, which allows
researchers to better capture the cross-sectional
variation in tax strategies, as tax strategies generally
require time to take shape (Hanlon & Heitzman,
2010). Second, I utilize the cash taxes paid measure
as a proxy of corporate tax avoidance to capture the
firm’s incentives to reduce actual cash taxes paid.
Unlike effective tax rate, cash effective tax rate is
not biased by changes in tax accounting accruals.
Furthermore, the cash measure reflects tax
avoidance activities that defer cash taxes paid (i.e.,
temporary differences) as well as those that directly
affect net income (i.e., permanent differences).
Finally, in the setting of firm value valuation, the use
of a long run corporate tax strategy is more
appropriate, as the effect of firm tax strategies in the
firm outcomes may not be captured over a short time
horizon (Dyreng et al., 2008).
I rely on two competing arguments in explaining
the relationship between corporate tax avoidance
and firm value. First, under risk minimization
perspective, corporate tax avoidance especially
aggressive strategies could diminish the firm value,
as investor consider this strategy as risky. As
documented by prior studies, corporate tax
avoidance may increases firm risk, imposes
reputational costs and leads to adverse capital
market consequences such as reduced firm value and
increased cost of capital (e.g., Dhaliwal et al., 2016;
Hutchens & Rego, 2012; Kim et al., 2011). Second,
under cash flow maximization perspective, corporate
tax avoidance is considered as a beneficial activity
and which may increase firm value in the future.
Consistent with this notion, Goh et. al. (2016) find
that equity investors demand a lower expected rate
of return due to the positive cash flow effects of
corporate tax avoidance. Using a sample of
Indonesian firms from 2006 to 2015 and a cross-
sectional regression framework, which regresses a
proxy of firm value on two measures of long run
corporate tax avoidance – along with relevant firm
Soepriyanto, G.
Long Run Corporate Tax Avoidance and Firm Value: Evidence from Indonesia.
In Proceedings of the Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study (JCAE 2018) - Contemporary Accounting Studies in
Indonesia, pages 267-275
ISBN: 978-989-758-339-1
Copyright © 2018 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
267

explanatory variables, I find that a firm engages in
more tax avoidance activities is associated with
lower firm value, which lends credence to risk-
minimization perspective. My study is important to
investors who presumably evaluate the extent of
corporate tax avoidance when making investment
decisions. The results from this study may help
investors infer the extent and nature of long run tax
avoidance a firm engages in.
2. LITERATURE REVIEW AND
HYPOTHESIS DEVELOPMENT
Corporate tax avoidance can be broadly defined as
the reduction of taxes. Hanlon and Heitzman (2010)
define corporate tax avoidance as a continuum of tax
planning strategies with perfectly legal and low-risk
strategies at one end and other strategies that entail
tax evasion or tax sheltering at the other end. Given
the broad range of strategies available to firms,
managers may also have to decide on whether they
opt for more aggressive or less aggressive forms of
tax avoidance. In an attempt to segregate corporate
tax avoidance from tax aggressiveness strategies
based on firms’ tax positions, tax aggressive
behavior is defined by Rego and Wilson (2012) as
firms being involved in significant tax positions with
relatively weak supporting facts. Consistent with
this, Guenther et al. (2016) considers a high tax risk
firm as a firm with a high degree of uncertainty
about future payments of taxes and penalties arising
from tax avoidance activities.
Desai and Dharmapala (2009), in investigating
the association between corporate tax avoidance and
firm value, fail to find any significant overall effect
of tax avoidance on Tobin’s Q or market-to-book
ratio. However, for firms with high levels of
institutional ownership (well-governed firms) they
find a positive relation between tax avoidance and
firm value measures, while for firms with low
institutional ownership (poorly governed firms) they
find no significant association. Considering
institutional ownership as a proxy for governance
quality, these results are consistent with agency
views, as they indicate a mitigating role of
governance on the agency problems related to tax
avoidance, which may be reflected in firm value.
In a related working paper, Katz, Khan and
Schmidt (2013) indirectly test whether tax avoidance
is partly value destroying by examining whether and
to what extent it might reduce the future profitability
of a firm. They argue that tax savings may either be
directed towards positive net present value
investments, or be extracted by opportunistic
managers. The authors document that current
profitability components (i.e., margins, utilizations
of assets, and operating leverage) imply a reduced
future profitability for tax avoiders when compared
to non-tax avoiders.
To examine the association between firm value
and long run-corporate tax avoidance, I rely on two
competing arguments. First, under risk minimization
perspective, corporate tax avoidance especially
aggressive strategies could diminish the firm value,
as investor consider this strategy as risky. As
documented by prior studies, corporate tax
avoidance may increases firm risk, imposes
reputational costs and leads to adverse capital
market consequences such as reduced firm value and
increased cost of capital (Dhaliwal et al., 2016;
Hutchens & Rego, 2012). Second, under cash-flow
maximization perspective, corporate tax avoidance
is considered as an advantageous activity and which
may increase firm value in the future. Consistent
with this notion, Goh et. al. (2016) find that equity
investors demand a lower expected rate of return due
to the positive cash flow effects of corporate tax
avoidance. As a consequence of those two
perspectives, my prediction focuses on clarifying the
association between firm value and long run
corporate tax avoidance. Hence, I formulate my
hypothesis in an alternative form but without signed
prediction, as follows:
H
A
: Long run corporate tax avoidance is
associated with the firm value.
3. RESEARCH DESIGN
This study employs the following multivariate
regression model to test the hypothesis, which
examines the association of long run corporate tax
avoidance and firm value:
𝑄
𝑖,𝑡
=∝ +𝛽𝑇𝐴𝑉
𝑖,𝑡
+ 𝛾
1
𝑅𝑂𝐴
𝑗,𝑖,𝑡
+ 𝛾
2
𝑆𝐼𝑍𝐸
𝑗,𝑖,𝑡
+ 𝛾
3
𝐿𝐸𝑉
𝑗,𝑖,𝑡
+𝛾
6
𝐶𝐴𝑃𝐸𝑋
𝑗,𝑖,𝑡
+ 𝛾
8
𝑆𝐺𝐴 + 𝛾
9
𝑅𝐷
𝑗,𝑖,𝑡
+ 𝛾
11
𝐼𝑁𝑇𝐴𝑁
𝑗,𝑖,𝑡
+ 𝜀
The dependent variable, Q, captures Tobin’s q
which defined as the market value of equity plus the
book value of assets minus the sum of book value of
equity and deferred taxes, all divided by the book
value of assets. The test variables, TAV, captures
long run tax avoidance and is based on two different
JCAE Symposium 2018 – Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study
268

measures of corporate tax avoidance used in prior
literature. Consistent with Dyreng et al. (2008), I
employ three-year long-run tax avoidance using
GAAP ETRs (LETR) and cash ETRs (LCETR) as the
two measures of long run corporate tax avoidance.
To compute the three-year GAAP ETRs, I aggregate
a firm’s total tax expense over the current period (t)
and last two-year period (t-2) and divide the
aggregate tax expense by aggregated total pretax
income over the same period, after leaving out
special items effects. To calculate three-year cash
ETRs, I sum a firm’s cash taxes paid over the
current period (t) and last two-year period (t-2) and
divide the aggregated cash taxes paid by the sum of
its total pretax income, excluding the effects of
special items, over the same period. I multiply LETR
and LCETR by -1 so that larger values capture
greater corporate tax avoidance. Based on risk-
minimization perspective, long-run corporate tax
avoidance will increase firm risk profile and
therefore will lead to lower firm value. As such,
long-run corporate tax avoidance is expected to be
negatively associated with firm value. In contrast,
under cash flow maximization perspective, long run
corporate tax avoidance will increase firm cash
saving and prevent a transfer of resource from firm
to government. Therefore, under the cash flow
maximization perspective, long run corporate tax
avoidance is expected to be positively associated
with firm value.
Consistent with prior studies (e.g., Bebchuk et
al., 2011; Chen et al., 2013), I also control for firm
size (SIZE- log natural of total assets), leverage
(LEV-the ratio of the firm’s long-term debt to total
assets), capital expenditure (CAPEX, measured as
capital expenditures scaled by gross property, plant,
and equipment), SGA defined as selling, general, and
administrative expenses divided by net sales, RD is
measured as research and development expense
divided by net sales and intangibles (INTAN, coded
1 if a firm has intangibles and 0 otherwise). Finally,
the empirical model includes controls for year and
industry fixed effects. Year fixed effects control for
macroeconomic changes in firms’ operating
environments over time and the industry fixed
effects ensure that the results are not driven by
differences in industry characteristics.
4. DATA AND SAMPLES
I used the financial statements data from IDX
websites to generate data. The samples selection and
procedures is demonstrated in Table 1. Panel A of
Table 1 outlines the sample selection process for this
study. I start with 6,579 observations obtained from
IDX website during the period of 2000-2015. I then
eliminate all financial institutions and firm using
foreign currencies, because prior research suggests
that regulated firms are subject to a different set of
tax and/or accounting rules (Hanlon, Kelley, &
Shevlin, 2005). This reduces the sample to 4,342
firm-year observations. A further 3,319 are excluded
because they do not have the data for computing my
long-run corporate tax avoidance measures and
share price data. Note that, because pre-tax income
can be negative, the ETR realizations are difficult or
impossible to interpret. As a result, the ETR to
measure corporate tax avoidance drop loss years,
thus discarding a significant fraction of the overall
population. This provides me with the final data of
1,023 firm-year observations. Panel B of Table 1
presents the yearly distribution of the observations in
the final sample. I find that all years after 2008, are
generally evenly distributed in my sample,
contributing between 93 (9.09 percent) and 155
observations (15.15 percent). Panel C of Table 1
reports the industry distribution of the final sample
firms based on the IDX industry classification
scheme. The manufacturing of food product industry
represents the largest industry, making up 12.81
percent of the full sample followed by the chemical
product and communications industries, which
contribute 9.87 percent and 5.47 percent of the
sample, respectively. It is important to note that I
control for year and industry-fixed effects in my
regression models.
Long Run Corporate Tax Avoidance and Firm Value: Evidence from Indonesia
269

Table 1: Sample Selection and Distribution
Panel A: Sample Selection
Firm-year
Total firm-year from IDX database (2000-2015)
6,579
Less: Financial institution firms
(1,737)
Less: Firms using foreign currencies
(500)
Firm-year available for sample selection from IDX database
4,342
Less: firm-year without share price data
(826)
Less: firm-year missing required long run tax avoidance data
(2,493)
Firm-year with requisite data
1,023
Unique firms
244
Panel B: Distribution of Firm-Year Observations by Year
Year
Firm-year
%
2006
19
2.83
2007
12
1.17
2008
33
3.23
2009
93
9.09
2010
111
10.85
2011
146
14.27
2012
144
14.08
2013
150
14.66
2014
155
15.15
2015
150
14.66
1,023
100%
Panel C: Distribution of Firm Observations, by Industry
Industry
Firm-year
%
Manufacturing: Food products
131
12.81
Manufacturing: Chemical products
101
9.87
Transportation & Public Utilities: Communications
56
5.47
Manufacturing: Stone, Clay & Glass Product
48
4.69
Wholesale trade: Nondurable goods
48
4.69
Manufacturing: Primary metal industries
45
4.40
Transportation & Public Utilities: Railroad transportation
40
3.91
Manufacturing: Rubber & Plastic product
39
3.81
Services: Hotel & Lodging places
33
3.23
Petroleum & Coal product
29
2.83
Coal mining
25
2.44
Services: Business Services
25
2.44
Agriculture Production
22
2.15
Manufacturing: Tobacco Products
21
2.05
Remaining industries (35 industries)
309
30.20
1,023
100%
JCAE Symposium 2018 – Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study
270

5. RESULT AND ANALYSIS
5.1 Summary Statistics
Table 2 presents the descriptive statistics for the
proxy of firm value, proxies of long run corporate
tax avoidance and the control variables. Focusing
on the Tobin’s Q, on average, firms in my sample
have 1.88 with median of 1.32. On the first proxy
of long-run corporate tax avoidance (LETR), on
average, firms in my sample have total tax
expenses amounting to 27 percent of pre-tax
income (median= 26 percent), while the second
proxy (LCETR), on average, firms in my sample
have total cash taxes paid amounting to 32 percent
of pre-tax income (median=0.28 percent). I find
that, on average (median), firms in my sample have
operating income amounting to 12 (9) percent of
their total assets (ROA). The mean of SIZE is
14.65 (median=14.55). The average ratio of long-
term debt to total assets (LEV) for the sample firms
is 10 percent, suggesting that my sample firms
predominantly use equity as their source of
financing. The sample firms, on average, have
capital expenditure amounting to 14 percent of
gross PPE (mean CAPX=0.06). The sample firms,
on average, spend 23.4 percent of their net sales on
sales, general and administration expenses (mean
SGA=0.17), 13 percent companies have non-zero
spending on research and development expenditure
(mean RD=0.13). Finally, on average, sample
firms have 3 percent of their total assets as
intangibles (mean INTAN=0.03).
Table 2: Descriptive Statistics
N
Mean
SD
Q1
Median
Q3
Q
1,023
1.88
1.76
0.93
1.32
2.11
LETR
1,023
-0.27
0.10
-0.30
-0.26
-0.23
LCETR
1,023
-0.32
0.20
-0.37
-0.28
-0.22
ROA
1,023
0.12
0.11
0.05
0.09
0.16
SIZE
1,023
14.65
1.58
13.41
14.55
15.73
LEV
1,023
0.10
0.13
0
0.05
0.17
CAPEX
1,023
0.14
0.14
0
0.06
0.11
SGA
1,023
0.17
0.29
0
0.07
0.11
INTAN
1,023
0.03
0.09
0
0
0.01
RD
1,023
0.13
0.34
0
0
0
Notes: Q= defined as the market value of equity plus the book value of assets minus the sum of book value of equity and deferred
taxes, all divided by the book value of assets. LETR= 3 years GAAP effective tax rates, LCETR= 3 years cash effective tax rates. I
multiply LETR and LCETR by -1 so that larger values capture greater corporate tax avoidance. SIZE = log natural of total assets),
LEV= the ratio of the firm’s long-term debt to total assets, CAPEX is measured as capital expenditures scaled by gross property,
plant, and equipment,, SGA defined as selling, general, and administrative expenses divided by net sales, RD is measured as research
and development expense divided by net sales and intangibles, INTAN, coded 1 if a firm has intangibles and 0 otherwise).
Long Run Corporate Tax Avoidance and Firm Value: Evidence from Indonesia
271

5.2 Main Empirical Results
Table 3 reports the results from the estimation of
empirical model, which regresses firm value on long
run corporate tax avoidance and the control
variables. The table presents the results from a
model specification that uses different long run
corporate tax avoidance measures (LETR and
LCETR) for the test variables and Tobin’s Q as the
dependent variable. Column (1) presents the
regression results using LETR as the test variable,
while column (2) relates to LCETR. The results
based on LETR as test variable (column (1)) reveal
that the coefficient on LETR is negative (-0.164) and
significant at the 5 percent level (t-statistic=-2.96).
This result suggests that as the level of long run
corporate tax avoidance increases, the firm value
decreases. The results based on LCETR (column
(2)) indicate that the coefficient on LCETR is
negative (-0.507) and significant at the 1 percent
level (t-statistic=-5.47), suggesting that as long run
cash taxes paid tax rates increases, the firm value
decreases. This findings provide support to the risk-
minimization motive, where investors consider
corporate tax avoidance as risky and value-reducing
strategies. The coefficients on the control variables
based on the LETR and LCETR analyses are
generally significant (p<.05 or better) and have signs
consistent with those reported in prior studies (e.g.
Rego, 2003; Gupta & Newberry, 1997). Finally, the
adjusted R-squared values from the two regression
specifications reported in Table 3 indicate that the
explanatory variables collectively explain around
71.71 percent and 72.14 percent of the total variation
in the firm value measure.
Table 3:Cross-Sectional Regressions of Tobin’s q on Long Run Corporate Tax Avoidance Measures and Control
Variables
Variable
Sign
Q
Q
(1)
(2)
LETR
+/-
-0.164
(-2.96)**
LCETR
+/-
-0.507
(-5.47)***
ROA
+
4.682
5.010
(5.17)***
(6.87)***
SIZE
+/-
0.133
0.136
(7.86)***
(8.06)***
LEV
-
0.214
0.234
(1.21)
(1.33)
0.214
0.250
CAPX
+
(1.87)*
(2.18)**
-0.033
-0.029
(-0.55)
(-0.48)
SGA
-
-0.167
-0.258
(-0.81)
(-1.24)
INTAN
+
0.097
0.119
(2.01)**
(2.46)**
RD
-
-1.328
-1.492
(-4.67)**
(-5.26)**
Cons
?
4.682
5.000
(25.17)***
(26.87)***
Year and industry fixed-effects
Yes
Yes
Adjusted R
2
0.7171
0.7214
F-statistics
89.14
89.83
Sample size
1,023
1,023
Notes:
This table presents regression results of firm value measure (Tobin’s q) on long run corporate tax avoidance (LETR and CETR) and
control variables. Reported in parentheses are t-statistics based on standard errors corrected for heteroscedasticity. *, **, and ***
indicate statistical significance at the 10%, 5%, and 1% levels, respectively. Significance levels are for one-tailed t-tests where a
predicted direction is provided, two-tailed otherwise. The variables are defined in Table 2.
JCAE Symposium 2018 – Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study
272

6. ROBUSTNESS TESTS
I also employ a propensity score matching approach
to further alleviate the concern that the negative
association between long run corporate tax
avoidance and firm value is due to self-selection
bias. To implement this analysis, I first perform a
logistic regression using an indicator dependent
variable, defined as 1 if long run corporate tax
avoidance is above or equal to the sample median
(‘high’ tax avoidance), and 0 otherwise (‘low’ tax
avoidance). I include all the stand-alone independent
variables in my empirical model as explanatory
variables in this logistic regression analysis. These
variables include a spectrum of firm fundamentals.
Panel A of Table 4 reports the logit regression
results. Next, I use the propensity scores obtained
from the estimation of the logistic regression and
perform a one-to-one nearest neighbor match by
selecting a best control match (i.e., low tax
avoidance) for each firms in the treatment group
(i.e., high tax avoidance). To ensure that the
treatment and matching sub-samples are not
significantly different in terms of major firm
characteristics, I use the caliper matching method
and match observations within a caliper of 10
percent, where caliper refers to the difference in the
predicted probabilities between the treatment and
control firm.
Table 4: Results for Firm Value and Long Run Corporate Tax Avoidance using Propensity Score Matching
PANEL A: Logit Regression of High Long Run Tax Avoidance
ROA
+
0.707
(1.70)*
SIZE
+
0.084
(2.76)**
LEV
?
-0.008
(-0.21)
CAPX
+
0.466
(1.51)
SGA
-
0.261
(1.47)
INTAN
-
0.575
(1.14)
RD
-
0.015
(1.19)
PANEL B: Comparison Between Treatment Sample and Control Sample – Independent Variables
Treatment sample (High Tax Av.)
Control sample (Low Tax Av.)
Obs.
Mean
Obs.
Mean
Difference
t-statistics
ROA
268
0.13
268
0.14
-0.00
-0.42
SIZE
268
14.84
268
14.94
-0.09
-0.50
LEV
268
0.09
268
0.11
-0.02
-0.99
CAPX
268
0.15
268
0.16
-0.01
-0.58
SGA
268
0.20
268
0.15
0.05
0.96
INTAN
268
0.03
268
0.02
0.01
0.82
RD
268
0.18
268
0.19
-0.01
-0.16
PANEL C: Comparison Between Treatment Sample and Control Sample –Dependent Variables
Treatment sample (High Tax Av.)
Control sample (Low Tax Av.)
Obs.
Mean
Obs.
Mean
Difference
t-statistics
Tobin’s q
268
2.04
268
2.81
-0.77
-1.75*
PANEL D: Propensity Score Matching Regression Results
Q (1)
Q (2)
LETR
+/-
-0.195
(-1.69)*
LCETR
+/-
-0.219
(-1.86)*
ROA
+
0.172
3.674
(4.78)***
(10.57)***
Long Run Corporate Tax Avoidance and Firm Value: Evidence from Indonesia
273

SIZE
+/-
-0.390
0.174
(-1.06)
(4.97)***
LEV
-
0.253
-0.307
(1.64)
(-0.85)
CAPX
+
0.280
0.249
(3.98)***
(1.65)*
SGA
+
-0.502
0.273
(-1.20)
(3.98)***
INTAN
+
0.052
-0.521
(0.57)
(-1.28)
RD
+
-1.788
0.052
(-3.02)***
(0.58)
3.881
3.674
Cons
?
(10.87)***
(10.57)***
Adjusted R
2
0.7715
0.7729
Industry and Year Fixed Effects
Yes
Yes
Sample Size
268
268
Panel B of Table 4 provides summary statistics
of variables that are used in the matching process
(i.e., variables used as explanatory variables in the
logistic regression used to extract the propensity
scores) for both treatment and control sub-samples,
as well as tests of differences in mean values of
matched variables across the treatment and control
sub-samples.
Having constructed the propensity score
matched sample, I then compare firm value
descriptive statistics of high tax avoidance
(treatment sample) and low tax avoidance firms
(control sample). Panel C of Table 4 presents the
results from this comparison. The mean value of
firm value for treatment sample firms is 2.04 while
the comparable value for firms in the control sub-
sample is 2.81. Thus, these statistics suggest that
the firm value for firms with high long run
corporate tax avoidance are, on average, lower
than firm value for firms with low long run
corporate tax avoidance. The results from a two-
sample t-test indicate that the difference is
statistically significant at the 10 percent level (t-
statistic=1.75). In summary, the descriptive
statistics based on a propensity score matched
sample are consistent with the main results that as
long run corporate tax avoidance increases, the
level of firm value decreases.
Having successfully identified my propensity-
score matched treatment and control firms, I next
re-estimate the main empirical models limited to
the propensity score matched sample. Panel D of
Table 4 reports the regression results from the
propensity score matched sample. The results
based on LETR (column (1)) demonstrate that the
coefficient on LETR is negative (-0.195) and
significant at the 10 percent level (t-statistic=-
1.69), indicating that as long run corporate tax
avoidance increases the firm value decreases. The
results from column (2) indicate that the
coefficient on LCETR is negative (-0.219) and
significant at the 10 percent level (t-statistic=-
1.86), suggesting that as cash taxes paid rate
increases, the firm value decreases. Again, the
results from this exercise reinforce my main results
in Table 3, suggesting that long run corporate tax
avoidance is associated negatively with firm value.
7. CONCLUSION
In this study, I examine the association between
long run corporate tax avoidance and firm value. I
consider two explanations of the possible
association between long run corporate tax
avoidance and firm value. First, under risk
minimization view, corporate tax avoidance
especially aggressive strategies could reduce the
firm value, as investor consider this strategy as
risky. Second, under cash-flow maximization
perspective, corporate tax avoidance is considered
as a value-enhancing activity and which may
increase firm value in the future due to cash saving
from tax payment. Based on a sample consisting of
1,023 firm-year observations, made up of 244
unique firms over the period 2006-2015, this study
finds that long run corporate tax avoidance is
negatively associated with firm value. My study is
significant to investors who apparently evaluate the
extent of corporate tax avoidance when making
investment decisions. The findings from this study
may assist investors deduce the extent and nature
of long run tax avoidance an Indonesian firm
engages in. Finally, my study has limitations,
which in turn suggest opportunities for some
JCAE Symposium 2018 – Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study
274

interesting extensions. For example, the risk
minimization perspective of investor on corporate
tax avoidance activities could be driven by concern
of managers’ opportunistic behavior. As such,
further extension on how different level of
corporate governance mechanism could influence
the association between firm value and long run
corporate tax avoidance is warranted.
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