Tax Avoidance in the Perspective of Diamond Fraud Theory and Its Consequences on Firm Value with Mediating Variables of Financial Distress and Ethical Management
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Published:
Aug 27, 2024
Keywords:
Ethical management, Firm value, Financial distress, Fraud diamond, Tax avoidance
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Articles
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Abstract
The research problem, namely empirical testing regarding fraud diamonds consisting of (a) pressure, (b) opportunity, (c) rationality, and (d) capability, may be the underlying reason for corporate tax avoidance. On the other hand, companies will experience financial difficulties so the intensification of financial distress within a company will lead the company to carry out tax avoidance. Fraud opportunities to commit tax avoidance can be realized if company managers do not carry out ethical management. The aim of the research is to obtain empirical evidence of Tax Avoidance from the Fraud Diamond Theory Perspective, and its consequences for firm value with the Mediation variables of Financial Distress and Ethical Management. The results of financial distress research become a mediating variable. Tax avoidance as Y1 while Christian (2020) corporate fraud. Even though corporate fraud cases have often been researched in the Asia Pacific region, especially China, in Southeast Asia there is still very little research or literature that examines tax avoidance cases using the fraud diamond approach with moderation of financial distress. Among other things, there is a significant positive influence of tax amnesty on tax avoidance, the influence of tax avoidance has a significant positive effect on firm value, a significant negative effect of tax amnesty on firm value, and tax avoidance is not a mediating variable for the effect of tax amnesty on firm value.
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How to Cite
Jaeni, J., Fadhila, Z. R., & Rahmadhani, S. (2024). Tax Avoidance in the Perspective of Diamond Fraud Theory and Its Consequences on Firm Value with Mediating Variables of Financial Distress and Ethical Management. Indonesia Accounting Research Journal, 12(1), 29–39. Retrieved from https://journals.iarn.or.id/index.php/Accounting/article/view/324
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Ao, X. Y., Ong, T. S., Aprile, R., & Di Vaio, A. (2023). Environmental uncertainty and digital technologies corporate in shaping corporate green behavior and tax avoidance. Sci Rep, 13(1), 22170. https://doi.org/10.1038/s41598-023-49687-w
Aviantara, R. (2023). Scoring the financial distress and the financial statement fraud of Garuda Indonesia with «DDCC» as the financial solutions. Journal of Modelling in Management, 18(1), 1-16.
Barbera, C., Guarini, E., & Steccolini, I. (2020). How do governments cope with austerity? The roles of accounting in shaping governmental financial resilience. Accounting, Auditing & Accountability Journal, 33(3), 529-558.
Bauer, A. M., Fang, J., Pittman, J., Zhang, Y., & Zhao, Y. (2020). How aggressive tax planning facilitates the diversion of corporate resources: Evidence from path analysis. Contemporary Accounting Research, 37(3), 1882-1913.
Bivianti, V., & Yuniarsih, N. (2022). The Effect of Executive Characteristics, CEO Overconfidence, Capital Intensity on Tax Avoidance.
Böhm, S., Carrington, M., Cornelius, N., de Bruin, B., Greenwood, M., Hassan, L., Jain, T., Karam, C., Kourula, A., & Romani, L. (2022). Ethics at the centre of global and local challenges: Thoughts on the future of business ethics. Journal of Business Ethics, 180(3), 835-861.
Boulhaga, M., Elbardan, H., & Elmassri, M. (2022). The effect of internal control and corporate social responsibility on conditional accounting conservatism: Evidence from France. Journal of Corporate Accounting & Finance, 34(2), 228-241. https://doi.org/10.1002/jcaf.22605
Dang, V. C., & Tran, X. H. (2021). The impact of financial distress on tax avoidance: An empirical analysis of the Vietnamese listed companies. Cogent Business & Management, 8(1), 1953678.
Dhian, A., & Rahmadhani, S. (2020). Analisis Faktor-faktor yang Mempengaruhi Return Saham pada Perbankan yang Go Public di Bursa Efek Indonesia (BEI) pada Periode 2014-2019. Prosiding Seminar Nasional Unimus,
Ermasova, N., & Burke, L. L. (2023). Tax Evasion: Cases of the USA. In Global Encyclopedia of Public Administration, Public Policy, and Governance (pp. 12625-12630). Springer.
Habib, A., Costa, M. D., Huang, H. J., Bhuiyan, M. B. U., & Sun, L. (2020). Determinants and consequences of financial distress: review of the empirical literature. Accounting & Finance, 60, 1023-1075.
Haloho, Y. W. Y. B., & Rahmadhani, S. (2024). The effect of leverage, profitability, company size, proportion of institutional ownership, and corporate social responsibility on tax planning. Jurnal Mantik, 8(2), 986-996.
Hasan, M. M. (2022). Corporate culture and bank debt. Finance Research Letters, 49. https://doi.org/10.1016/j.frl.2022.103152
Hashim, H. A., Salleh, Z., Shuhaimi, I., & Ismail, N. A. N. (2020). The risk of financial fraud: a management perspective. Journal of Financial Crime, 27(4), 1143-1159.
Hermanson, D. R., & Wolfe, D. T. (2024). The Fraud Diamond. CPA Journal, 94.
Horváth, D., & Wang, Y.-L. (2021). The examination of Fama-French model during the COVID-19. Finance Research Letters, 41, 101848.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior,
Agency Costs and Ownership Structure. Journal of Financial Economics, 3(4), 305-360.
Jha, J. K., & Singh, M. (2023). Who cares about ethical practices at workplace? A taxonomy of employees’ unethical conduct from top management perspective. International Journal of Organizational Analysis, 31(2), 317-339.
Jhunjhunwala, S. (2023). Internal control, financial oversight and risk management: the winning board: assurance and reliability with big profits. In Corporate Governance: Creating Value for Stakeholders (pp. 73-99). Springer.
Jiang, K., & Wang, S. (2023). Survival tactics for distressed firms in emerging markets. Asia Pacific Journal of Management, 1-44.
Kagias, P., Cheliatsidou, A., Garefalakis, A., Azibi, J., & Sariannidis, N. (2022). The fraud triangle–an alternative approach. Journal of Financial Crime, 29(3), 908-924.
Kalovya, O. Z. (2023). Determinants of occupational fraud losses: offenders, victims and insights from fraud theory. Journal of Financial Crime, 30(2), 361-376.
Khurana, I. K., Moser, W. J., & Raman, K. K. (2018). Tax Avoidance, Managerial Ability, and Investment Efficiency. Abacus, 54(4), 547-575. https://doi.org/10.1111/abac.12142
Kon, Z. S., Lim, Y. H., Choong, Y. O., Paloosamy, J. R., & Low, B. T. (2024). The influence of pressure on intention to commit fraud: the mediating role of rationalization and opportunities. Asian Journal of Business Ethics, 1-21.
Koomson, T. A. A., & Owusu, G. M. Y. (2022). The motivation to engage in fraud by individuals at the workplace. In Delivering Distinctive Value in Emerging Economies (pp. 189-203). Productivity Press.
Kristjánsson, K. (2022). Collective phronesis in business ethics education and managerial practice: A neo-Aristotelian analysis. Journal of Business Ethics, 181(1), 41-56.
Kulmie, D. A. (2023). Financial crimes in Somali public sector: Causes and consequences. International Journal of Economics and Finance, 15(4), 1-18.
Li, Z., Crook, J., Andreeva, G., & Tang, Y. (2021). Predicting the risk of financial distress using corporate governance measures. Pacific-Basin Finance Journal, 68, 101334.
Mangoting, Y., Leoni, M., & Natalia, C. (2024). How Tax Knowledge Mediates Business Performance? JDM (Jurnal Dinamika Manajemen), 15(1), 10-26.
Marai, A., & Pavlović, V. (2013). Earnings management vs financial reporting fraud: Key features for distinguishing. Facta universitatis-series: Economics and Organization, 10(1), 39-47.
Matute, J., Sánchez-Torelló, J. L., & Palau-Saumell, R. (2021). The influence of organizations’ tax avoidance practices on consumers’ behavior: The role of moral reasoning strategies, political ideology, and brand identification. Journal of Business Ethics, 174(2), 369-386.
Maulidi, A. (2020). When and why (honest) people commit fraudulent behaviours? Extending the fraud triangle as a predictor of fraudulent behaviours. Journal of Financial Crime, 27(2), 541-559.
Mayer, C. (2021). The future of the corporation and the economics of purpose. Journal of Management Studies, 58(3), 887-901.
Meidijati, M., & Amin, M. N. A. (2022). Detecting Fraudulent Financial Reporting Through Hexagon Fraud Model: Moderating Role of Income Tax Rate. International Journal of Social and Management Studies, 3(2), 311-322.
Müller, R., Spengel, C., & Weck, S. (2021). How do investors value the publication of tax information? Evidence from the European public country‐by‐country reporting. Contemporary Accounting Research.
Oware, K. M., Appiah, K., & Adomah Worae, T. (2023). CSR disclosure and debt financing in India: does CEO tenure matter? Journal of Applied Accounting Research, 24(3), 442-463.
Özbay, D., Adıgüzel, H., & Karahan Gökmen, M. (2023). Corporate social responsibility and tax avoidance: Channeling effect of family firms. Journal of Corporate Accounting & Finance, 34(3), 11-30.
Paino, H., Nazmul, M., & Jahari, F. (2023). Effectiveness of Internal Control System towards Fraud Prevention in Ma-laysia’s Small and Mid-size Enterprises. Review of Economics and Finance, 21, 1571-1583.
Park, Y. E., & Kang, M. (2020). When crowdsourcing in CSR leads to dialogic communication: The effects of trust and distrust. Public Relations Review, 46(1), 101867.
Pasiouras, F., Bouri, E., Roubaud, D., & Galariotis, E. (2021). Culture and multiple firm–bank relationships: a matter of secrecy and trust? Journal of Business Ethics, 174, 221-249.
Rae, K., & Subramaniam, N. (2008). Quality of internal control procedures: Antecedents and moderating effect on organisational justice and employee fraud. Managerial Auditing Journal, 23(2), 104-124.
Rahmadhani, S., Aprilia, K. P. D., & Astohar, A. (2020). Public Accounting Firm Change And External Pressure Detecting Financial Reporting Fraud. Webinar dan Call for Paper Online,
Rahmadhani, S., Faisal, F., Joseph, C., & Januarti, I. (2024). Corporate social responsibility and corporate investments: does research and development intensity matter? Cogent Business & Management, 11(1). https://doi.org/10.1080/23311975.2024.2375618
Rahmadhani, S., & Indriyani, R. (2019). Impact of Emissions Intensive Industries And Financial Distress On Voluntary Carbon Emission Disclosure. AKRUAL: Jurnal Akuntansi, 11(1). https://doi.org/10.26740/jaj.v11n1.p1-8
Rosita, R. (2020). Pengaruh Pandemi Covid-19 Terhadap Umkm Di Indonesia. Jurnal Lentera Bisnis, 9(2). https://doi.org/10.34127/jrlab.v9i2.380
Sahla, W. A., & Ardianto, A. (2023). Ethical values and auditors fraud tendency perception: testing of fraud pentagon theory. Journal of Financial Crime, 30(4), 966-982.
Sari, K. R., Martini, R., Almira, N., Hartati, S., & Husin, F. (2022). Prediction of Bankruptcy Risk Using Financial Distress Analysis. Golden Ratio of Finance Management, 2(2), 77-86.
Shobandiyah, S., & Rahmadhani, S. (2024). The Influence of Corporate Social Responsibility (CSR) Expenditure Elements on Debt Financing and The Moderating Role of Accounting Conservatism. The Indonesian Journal of Accounting Research, 27(2), 335-364.
Svetlozarova Nikolova, B. (2023). Cross-Border Tax Fraud as a Barrier to Sustainable Development. In Tax Audit and Taxation in the Paradigm of Sustainable Development: The Impact on Economic, Social and Environmental Development (pp. 55-72). Springer.
Watson, L. (2014). Corporate Social Responsibility, Tax Avoidance and Earnings Performance. Journal of The American Taxation Association, 37(2), 1-21.
Wolfe, D. T., & Hermanson, D. R. (2004). The Fraud Diamond Considering the Four Elements of Fraud The CPA Jurnal, 74(12), 38-42.
Zhou, F., Fu, L., Li, Z., & Xu, J. (2022). The recurrence of financial distress: A survival analysis. International Journal of Forecasting, 38(3), 1100-1115.
Zhu, J. N., Lam, L. W., Liu, Y., & Jiang, N. (2023). Performance pressure and employee expediency: the role of moral decoupling. Journal of Business Ethics, 186(2), 465-478.
Almagtome, A., & Abo-aljun, B. A. (2023). The influence of behavioral dimensions on the propensity of accountants to commit accounting fraud: A psychological perspective. Journal for ReAttach Therapy and Developmental Diversities, 6(4s), 421-429.
Ao, X. Y., Ong, T. S., Aprile, R., & Di Vaio, A. (2023). Environmental uncertainty and digital technologies corporate in shaping corporate green behavior and tax avoidance. Sci Rep, 13(1), 22170. https://doi.org/10.1038/s41598-023-49687-w
Aviantara, R. (2023). Scoring the financial distress and the financial statement fraud of Garuda Indonesia with «DDCC» as the financial solutions. Journal of Modelling in Management, 18(1), 1-16.
Barbera, C., Guarini, E., & Steccolini, I. (2020). How do governments cope with austerity? The roles of accounting in shaping governmental financial resilience. Accounting, Auditing & Accountability Journal, 33(3), 529-558.
Bauer, A. M., Fang, J., Pittman, J., Zhang, Y., & Zhao, Y. (2020). How aggressive tax planning facilitates the diversion of corporate resources: Evidence from path analysis. Contemporary Accounting Research, 37(3), 1882-1913.
Bivianti, V., & Yuniarsih, N. (2022). The Effect of Executive Characteristics, CEO Overconfidence, Capital Intensity on Tax Avoidance.
Böhm, S., Carrington, M., Cornelius, N., de Bruin, B., Greenwood, M., Hassan, L., Jain, T., Karam, C., Kourula, A., & Romani, L. (2022). Ethics at the centre of global and local challenges: Thoughts on the future of business ethics. Journal of Business Ethics, 180(3), 835-861.
Boulhaga, M., Elbardan, H., & Elmassri, M. (2022). The effect of internal control and corporate social responsibility on conditional accounting conservatism: Evidence from France. Journal of Corporate Accounting & Finance, 34(2), 228-241. https://doi.org/10.1002/jcaf.22605
Dang, V. C., & Tran, X. H. (2021). The impact of financial distress on tax avoidance: An empirical analysis of the Vietnamese listed companies. Cogent Business & Management, 8(1), 1953678.
Dhian, A., & Rahmadhani, S. (2020). Analisis Faktor-faktor yang Mempengaruhi Return Saham pada Perbankan yang Go Public di Bursa Efek Indonesia (BEI) pada Periode 2014-2019. Prosiding Seminar Nasional Unimus,
Ermasova, N., & Burke, L. L. (2023). Tax Evasion: Cases of the USA. In Global Encyclopedia of Public Administration, Public Policy, and Governance (pp. 12625-12630). Springer.
Habib, A., Costa, M. D., Huang, H. J., Bhuiyan, M. B. U., & Sun, L. (2020). Determinants and consequences of financial distress: review of the empirical literature. Accounting & Finance, 60, 1023-1075.
Haloho, Y. W. Y. B., & Rahmadhani, S. (2024). The effect of leverage, profitability, company size, proportion of institutional ownership, and corporate social responsibility on tax planning. Jurnal Mantik, 8(2), 986-996.
Hasan, M. M. (2022). Corporate culture and bank debt. Finance Research Letters, 49. https://doi.org/10.1016/j.frl.2022.103152
Hashim, H. A., Salleh, Z., Shuhaimi, I., & Ismail, N. A. N. (2020). The risk of financial fraud: a management perspective. Journal of Financial Crime, 27(4), 1143-1159.
Hermanson, D. R., & Wolfe, D. T. (2024). The Fraud Diamond. CPA Journal, 94.
Horváth, D., & Wang, Y.-L. (2021). The examination of Fama-French model during the COVID-19. Finance Research Letters, 41, 101848.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior,
Agency Costs and Ownership Structure. Journal of Financial Economics, 3(4), 305-360.
Jha, J. K., & Singh, M. (2023). Who cares about ethical practices at workplace? A taxonomy of employees’ unethical conduct from top management perspective. International Journal of Organizational Analysis, 31(2), 317-339.
Jhunjhunwala, S. (2023). Internal control, financial oversight and risk management: the winning board: assurance and reliability with big profits. In Corporate Governance: Creating Value for Stakeholders (pp. 73-99). Springer.
Jiang, K., & Wang, S. (2023). Survival tactics for distressed firms in emerging markets. Asia Pacific Journal of Management, 1-44.
Kagias, P., Cheliatsidou, A., Garefalakis, A., Azibi, J., & Sariannidis, N. (2022). The fraud triangle–an alternative approach. Journal of Financial Crime, 29(3), 908-924.
Kalovya, O. Z. (2023). Determinants of occupational fraud losses: offenders, victims and insights from fraud theory. Journal of Financial Crime, 30(2), 361-376.
Khurana, I. K., Moser, W. J., & Raman, K. K. (2018). Tax Avoidance, Managerial Ability, and Investment Efficiency. Abacus, 54(4), 547-575. https://doi.org/10.1111/abac.12142
Kon, Z. S., Lim, Y. H., Choong, Y. O., Paloosamy, J. R., & Low, B. T. (2024). The influence of pressure on intention to commit fraud: the mediating role of rationalization and opportunities. Asian Journal of Business Ethics, 1-21.
Koomson, T. A. A., & Owusu, G. M. Y. (2022). The motivation to engage in fraud by individuals at the workplace. In Delivering Distinctive Value in Emerging Economies (pp. 189-203). Productivity Press.
Kristjánsson, K. (2022). Collective phronesis in business ethics education and managerial practice: A neo-Aristotelian analysis. Journal of Business Ethics, 181(1), 41-56.
Kulmie, D. A. (2023). Financial crimes in Somali public sector: Causes and consequences. International Journal of Economics and Finance, 15(4), 1-18.
Li, Z., Crook, J., Andreeva, G., & Tang, Y. (2021). Predicting the risk of financial distress using corporate governance measures. Pacific-Basin Finance Journal, 68, 101334.
Mangoting, Y., Leoni, M., & Natalia, C. (2024). How Tax Knowledge Mediates Business Performance? JDM (Jurnal Dinamika Manajemen), 15(1), 10-26.
Marai, A., & Pavlović, V. (2013). Earnings management vs financial reporting fraud: Key features for distinguishing. Facta universitatis-series: Economics and Organization, 10(1), 39-47.
Matute, J., Sánchez-Torelló, J. L., & Palau-Saumell, R. (2021). The influence of organizations’ tax avoidance practices on consumers’ behavior: The role of moral reasoning strategies, political ideology, and brand identification. Journal of Business Ethics, 174(2), 369-386.
Maulidi, A. (2020). When and why (honest) people commit fraudulent behaviours? Extending the fraud triangle as a predictor of fraudulent behaviours. Journal of Financial Crime, 27(2), 541-559.
Mayer, C. (2021). The future of the corporation and the economics of purpose. Journal of Management Studies, 58(3), 887-901.
Meidijati, M., & Amin, M. N. A. (2022). Detecting Fraudulent Financial Reporting Through Hexagon Fraud Model: Moderating Role of Income Tax Rate. International Journal of Social and Management Studies, 3(2), 311-322.
Müller, R., Spengel, C., & Weck, S. (2021). How do investors value the publication of tax information? Evidence from the European public country‐by‐country reporting. Contemporary Accounting Research.
Oware, K. M., Appiah, K., & Adomah Worae, T. (2023). CSR disclosure and debt financing in India: does CEO tenure matter? Journal of Applied Accounting Research, 24(3), 442-463.
Özbay, D., Adıgüzel, H., & Karahan Gökmen, M. (2023). Corporate social responsibility and tax avoidance: Channeling effect of family firms. Journal of Corporate Accounting & Finance, 34(3), 11-30.
Paino, H., Nazmul, M., & Jahari, F. (2023). Effectiveness of Internal Control System towards Fraud Prevention in Ma-laysia’s Small and Mid-size Enterprises. Review of Economics and Finance, 21, 1571-1583.
Park, Y. E., & Kang, M. (2020). When crowdsourcing in CSR leads to dialogic communication: The effects of trust and distrust. Public Relations Review, 46(1), 101867.
Pasiouras, F., Bouri, E., Roubaud, D., & Galariotis, E. (2021). Culture and multiple firm–bank relationships: a matter of secrecy and trust? Journal of Business Ethics, 174, 221-249.
Rae, K., & Subramaniam, N. (2008). Quality of internal control procedures: Antecedents and moderating effect on organisational justice and employee fraud. Managerial Auditing Journal, 23(2), 104-124.
Rahmadhani, S., Aprilia, K. P. D., & Astohar, A. (2020). Public Accounting Firm Change And External Pressure Detecting Financial Reporting Fraud. Webinar dan Call for Paper Online,
Rahmadhani, S., Faisal, F., Joseph, C., & Januarti, I. (2024). Corporate social responsibility and corporate investments: does research and development intensity matter? Cogent Business & Management, 11(1). https://doi.org/10.1080/23311975.2024.2375618
Rahmadhani, S., & Indriyani, R. (2019). Impact of Emissions Intensive Industries And Financial Distress On Voluntary Carbon Emission Disclosure. AKRUAL: Jurnal Akuntansi, 11(1). https://doi.org/10.26740/jaj.v11n1.p1-8
Rosita, R. (2020). Pengaruh Pandemi Covid-19 Terhadap Umkm Di Indonesia. Jurnal Lentera Bisnis, 9(2). https://doi.org/10.34127/jrlab.v9i2.380
Sahla, W. A., & Ardianto, A. (2023). Ethical values and auditors fraud tendency perception: testing of fraud pentagon theory. Journal of Financial Crime, 30(4), 966-982.
Sari, K. R., Martini, R., Almira, N., Hartati, S., & Husin, F. (2022). Prediction of Bankruptcy Risk Using Financial Distress Analysis. Golden Ratio of Finance Management, 2(2), 77-86.
Shobandiyah, S., & Rahmadhani, S. (2024). The Influence of Corporate Social Responsibility (CSR) Expenditure Elements on Debt Financing and The Moderating Role of Accounting Conservatism. The Indonesian Journal of Accounting Research, 27(2), 335-364.
Svetlozarova Nikolova, B. (2023). Cross-Border Tax Fraud as a Barrier to Sustainable Development. In Tax Audit and Taxation in the Paradigm of Sustainable Development: The Impact on Economic, Social and Environmental Development (pp. 55-72). Springer.
Watson, L. (2014). Corporate Social Responsibility, Tax Avoidance and Earnings Performance. Journal of The American Taxation Association, 37(2), 1-21.
Wolfe, D. T., & Hermanson, D. R. (2004). The Fraud Diamond Considering the Four Elements of Fraud The CPA Jurnal, 74(12), 38-42.
Zhou, F., Fu, L., Li, Z., & Xu, J. (2022). The recurrence of financial distress: A survival analysis. International Journal of Forecasting, 38(3), 1100-1115.
Zhu, J. N., Lam, L. W., Liu, Y., & Jiang, N. (2023). Performance pressure and employee expediency: the role of moral decoupling. Journal of Business Ethics, 186(2), 465-478.
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