To read this content please select one of the options below:

Contingent fit between business strategies and environmental uncertainty: The impact on corporate tax avoidance in Indonesia

Dianwicaksih Arieftiara (Universitas Pembangunan Nasional Veteran Jakarta, Jakarta, Indonesia)
Sidharta Utama (Universitas Indonesia, Depok, Indonesia)
Ratna Wardhani (Universitas Indonesia, Depok, Indonesia)
Ning Rahayu (Universitas Indonesia, Depok, Indonesia)

Meditari Accountancy Research

ISSN: 2049-372X

Article publication date: 25 September 2019

Issue publication date: 25 September 2019

1978

Abstract

Purpose

This study aims to examine the contingent fit between business strategies and environmental uncertainty and its effect on corporate tax avoidance.

Design/methodology/approach

This study uses a two-stage linear regression method comprising multinomial logistic regression and panel data regression.

Findings

This study finds that under highly uncertain conditions, the contingent fit of prospector strategy is higher than the contingent fit of other two strategies, i.e. defender and analyzer strategy. The study fails, however, to demonstrate that under highly uncertain conditions, this study finds that under highly uncertain conditions the contingent fit of a “prospector” strategy is higher than for “defender” and “analyzer” strategies. The study fails, however, to demonstrate that under highly uncertain conditions the contingent fit of a defender strategy is higher than that of an analyzer strategy. The study also finds that the contingent fit between prospector strategy and environmental uncertainty has a positive effect on tax avoidance, and this effect is higher than for the misfit strategies. Moreover, in such environments the fit level of a defender strategy has a negative effect on tax avoidance while environmental uncertainty has a positive effect on tax avoidance.

Research limitations/implications

This study estimated competition uncertainty using the Herfindahl index to measure competitive intensity in an industry. However, only the data from public listed companies was used due to a lack of data availability for non-public companies. Consequently, further study is recommended to include the total number of companies within an industry as a proxy of competitive intensity.

Practical implications

The results implied that managers, not only in Indonesia but also in other countries as well, specifically emerging countries (generally the environmental uncertainty in emerging countries is high) should consider the contingent factors when making business strategy decisions. Managers must be aware of the contingent fit with environmental uncertainty, and therefore, must assess external conditions prudently. Furthermore, the results of this study showed that managers should pay more attention to the effects of their decisions on corporate tax avoidance, while aligning their business strategy decisions with corporate tax planning strategy to obtain an optimal outcome for the company.

Social implications

The Directorate General of Taxes and Board of Fiscal Policy, as regulators, need to comprehend environmental uncertainty to issue various policies that can ease the burden of the taxpayer to remain in business, particularly during the turbulence environment so that can prevent the companies doing illegal practices and will eventually reduce the number of tax avoidance.

Originality/value

This study developed alternative measure of tax avoidance, which is tax avoidance latent variable score (TAXLVS). The TAXLVS was derived from confirmatory factor analysis of previous existing tax avoidance measurements. This study is also the first that analyzes the effect of business strategy on tax avoidance using contingency approach.

Keywords

Citation

Arieftiara, D., Utama, S., Wardhani, R. and Rahayu, N. (2019), "Contingent fit between business strategies and environmental uncertainty: The impact on corporate tax avoidance in Indonesia", Meditari Accountancy Research, Vol. 28 No. 1, pp. 139-167. https://doi.org/10.1108/MEDAR-05-2018-0338

Publisher

:

Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited

Related articles