The Effect of Corporate Governance on Tax Avoidance: The Role of Profitability as a Mediating Variable

This study aims to examine the effect of institutional ownership, independent board of commissioners, audit committee, and profitability (RNOA) on tax avoidance in banking companies listed on the Indonesia Stock Exchange over the 2014–2018 period. The sampling method employed in this study was the cluster sampling method. The population was all banking companies listed on the Indonesia Stock Exchange for the period 2014–2018. The sample selection results using the purposive sampling method during the observation includes 209 companies that published complete annual reports and their financial report notes as of December 31, 2018. The results revealed that institutional ownership and independent board of commissioners did not affect profitability. Profitability also did not affect tax avoidance. Further findings showed that institutional ownership and audit committee positively affect tax avoidance. From the result of Sobel test, this study indicated that profitability cannot mediate the effect of institutional ownership, independent board of commissioners, and audit committee on tax avoidance. This study has succeeded in proving empirically that there was a significant effect of the audit committee on profitability, institutional ownership on tax avoidance, and the audit committee on tax avoidance. Therefore, this study supports the agency theory and the research model from previous studies.