TY - JOUR
T1 - Contingent fit between business strategies and environmental uncertainty
T2 - The impact on corporate tax avoidance in Indonesia
AU - Arieftiara, Dianwicaksih
AU - Utama, Sidharta
AU - Wardhani, Ratna
AU - Rahayu, Ning
N1 - Funding Information:
This paper was presented at the 6th International Accounting Conference hosted by the Accounting Department of the Faculty of Economics and Business, Universitas Indonesia (27 to 29 August 2017, Yogyakarta, Indonesia).
Publisher Copyright:
© 2019, Emerald Publishing Limited.
PY - 2019/1/1
Y1 - 2019/1/1
N2 - 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.
AB - 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.
KW - Business strategies
KW - Contingent fit
KW - Corporate tax avoidance
KW - Environmental uncertainty
UR - http://www.scopus.com/inward/record.url?scp=85074021364&partnerID=8YFLogxK
U2 - 10.1108/MEDAR-05-2018-0338
DO - 10.1108/MEDAR-05-2018-0338
M3 - Article
AN - SCOPUS:85074021364
SN - 2049-372X
VL - 28
SP - 139
EP - 167
JO - Meditari Accountancy Research
JF - Meditari Accountancy Research
IS - 1
ER -