Investor Reaction to Real Earnings Management for Tax Avoidance (The Case in Indonesia)

Abstract

This study aims to determine whether companies in Indonesia use real earningsmanagement to avoid taxes. This study also analyzes how investors react to corporate real earnings management for the purpose of tax avoidance. The sampleused is a manufacturing company listed on the Indonesia Stock Exchange during 2009 to 2014, which is suspected of tax avoidance. The results of this study prove:(1) companies in Indonesia use real earnings management to avoid taxes. (2) Theinvestor reacts positively to tax avoidance by the company for tax purposes (3) Although real earnings management can be used as an alternative in tax avoidancebut this study proves that real earnings management does not mediate the relationship between tax avoidance and investor reactions.