Does Female on Board Mitigate Earnings Manipulation to Pay Less Taxes? Further Evidence from Emerging Market

Abstract

This study analyzes the effect of earnings management on tax avoidance with the moderating role of gender diversity on the board of directors (women on board/WoB) in Indonesian manufacturing companies. The data were taken from the Indonesia Stock Exchange (IDX) for the 2021–2023 period (380 samples). Using panel data regression and measuring tax avoidance through the Effective Tax Rate (ETR) and Book-Tax Differences (BTD), the results indicate that earnings management (both real and accrual) has no significant effect on ETR (Effective Tax Rate). Consequently, we reject the initial hypothesis (H1). However, real earnings management (REM) increases BTD (Book-Tax Differences). Profitability (ROA) emerged as the dominant factor. It is negatively associated with ETR (profitable companies pay less tax) and positively associated with BTD (widening the accounting-taxable income gap). Women on board (the proportion of female directors) failed to moderate the relationship between earnings management and tax avoidance. The low representation of women (averaging 10.9%) and the absence of strategic roles are suspected causes. The tax authority (DJP) needs to prioritise audits of companies with high ROA and focus on BTD analyses and real operational activities. This study highlights the complexity of tax dynamics in Indonesia, where profitability proves more crucial than earnings management or gender diversity in influencing tax avoidance.