POLITICAL CONNECTION, TAX AGGRESSIVENESS, AND FIRM VALUE: EVIDENCE FROM INDONESIA

Abstract

This research explores the influence of political affiliations on the valuation of firms operating within the industrial sector and listed on the Indonesia Stock Exchange (IDX) during the period from 2019 to 2021. The analytical approach adopted in this study involves panel data regression, conducted using Amos version 26. The research population comprises all manufacturing firms listed on the IDX, totalling 227 entities. The findings reveal a positive relationship between political connections and firm value, indicating that such affiliations may confer certain advantages that contribute to the enhancement of long-term corporate performance. Signals conveyed by politically affiliated board members, including commissioners and directors, appear to yield favourable outcomes. However, political ties are not aligned with practices of tax avoidance. This suggests that directors or commissioners with political affiliations do not necessarily provide complete protection from tax liabilities. Moreover, when political involvement influences corporate earnings in a manner that disadvantages investors—thereby prompting a lower firm valuation—no association is observed between aggressive tax practices and company value. Additionally, high taxation does not serve as an effective mediating factor in the link between political connections and firm valuation.