The Impact of Firm Size, Capital Intensity, and Inventory Intensity on Effective Tax Rate with Profitability as a Moderating Variable

Abstract

Empirical impacts of firm size, capital intensity, and inventory intensity on the Effective Tax Rate (ETR) undergo rigorous evaluation in this research, incorporating profitability as an underlying moderating factor. Primary analytical focus centers on consumer non-cyclical business entities trading on the Indonesia Stock Exchange (IDX) across the 2021–2025 period. Using a purposive sampling method, an initial target of 200 observation units was identified, however, following data cleansing of 31 outlier observations to satisfy classical assumption metrics, a final robust sample of 169 observations was analyzed using Moderated Regression Analysis (MRA) with SQRT_Lag_ETR applied as a vital baseline control variable. The t-test findings demonstrate that firm size significantly increases the ETR, largely driven by structural compliance pressures aimed at reducing agency costs. Conversely, inventory intensity shows a significant inverse effect on the ETR, confirming that managers actively utilize inventory storage and operational carrying costs as a legitimate tax planning mechanism. Meanwhile, capital intensity shows no significant impact on the ETR, indicating that fixed assets are dedicated strictly to core production capacities rather than discretionary accounting manipulation. Crucially, the MRA framework demonstrates that profitability significantly moderates the relationship by weakening the positive impact of firm size on ETR due to relaxed principal oversight during high earning seasons. Profitability also acts as a predictive moderator that intensifies the negative impact of inventory intensity on ETR. However, profitability fails to moderate the capital intensity ETR link. This study provides pivotal strategic insights into how corporate profitability inherently transforms internal corporate tax agendas.