Determining Factors of Thin Capitalization Practices in Indonesia

Abstract

This study aims to obtain empirical evidence of the influence of multi-nationality, tax haven utilization, tax uncertainty, executive character, institutional Ownership, independent commissioners, audit committees, and audit quality on thin capitalization. The population in this study is multinational companies listed on the Indonesia Stock Exchange (IDX) for the period 2016-2018. Sample selection using purposive sampling and obtained a sample of 63 companies. Data analysis techniques are multiple linear regression. The results showed that multi-nationality, utilization of tax havens, tax uncertainty, independent commissioners, and audit quality influenced thin capitalization. Meanwhile, the executive character, institutional Ownership, and audit committee do not affect thin capitalization. The implication is to tighten the supervision of corporate debt by the Government and maximize the implementation of good corporate governance by companies to prevent the practice of thin capitalization.

Keywords: Multi-nationality, Utilization of Tax, Haven, Tax Uncertainty, Good Corporate Governance, Thin Capitalization

JEL Classification: M40, M48