Exploring the Link Between Tax Avoidance, Cash Flows, and Political Connections
Keywords:
Tax avoidance, political connections, financial distress, abnormal cash flowsAbstract
This study explores the dynamics of tax avoidance in Indonesia, focusing on the interplay between political connections, financial distress, and abnormal cash flows. Using panel data from companies listed on the Indonesia Stock Exchange (IDX) between 2019 and 2022, the research investigates how political connections influence tax avoidance practices, particularly during times of financial distress. The findings reveal that politically connected firms engage in significantly higher levels of tax avoidance, leveraging their ties to exploit regulatory gaps. Financial distress exacerbates this behavior, as firms adopt aggressive tax strategies to manage cash flow challenges. Furthermore, politically connected companies exhibit abnormal cash flow patterns, such as delayed tax payments and strategic deferrals, to optimize their financial position. The study highlights the critical role of political connections in enabling tax avoidance and underscores the need for stronger regulatory frameworks to ensure fair tax enforcement. The research calls for policy reforms to enhance transparency, strengthen audits, and reduce the influence of political ties on tax compliance, ensuring long-term fiscal sustainability and economic growth.
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