Monitoring Mechanisms, Corporate Performance, and Corporate Tax Strategy: An Agency Theory Perspective

Abstract

Purpose: This study aims to examine whether monitoring mechanisms, alignment mechanism, and firm characteristics influence corporate tax strategy through corporate performance in Indonesian listed manufacturing companies.Research Methodology: This study employed a quantitative explanatory approach using purposive sampling. The sample consisted of manufacturing companies consistently listed on the Indonesia Stock Exchange during 2022–2024, publishing annual financial statements ending on December 31, presenting financial statements in Rupiah, recording profit before and after tax, and reporting CETR values greater than 0 and less than 1. The final dataset comprised 318 firm-year observations and was analyzed using STATA version 17 through panel data regression.Results: The findings show that managerial ownership and sales growth influence corporate performance, while corporate performance shapes corporate tax strategy. Other governance and firm-characteristic variables do not show a direct effect on corporate tax strategy after corporate performance is included. These results strengthen the novelty of this study by showing that corporate tax strategy is better explained through a performance-mediated pathway rather than through direct governance effects alone, thereby contributing to agency-based corporate governance and taxation literature.Conclusions: This study concludes that corporate tax strategy is better explained as a performance-mediated managerial outcome rather than merely as a direct consequence of formal governance mechanisms.Limitations: This study is limited to Indonesian manufacturing companies during the 2022–2024 period.Contributions: This study provides practical insight for regulators, investors, and corporate decision-makers in strengthening governance mechanisms that support performance accountability and responsible tax strategy.