Leverage, Transfer Pricing, and Earnings Management on Tax Avoidance in Consumer Goods Firms

Abstract

Tax avoidance remains a persistent challenge to Indonesia’s fiscal capacity, yet its financial drivers in the primary consumer goods sector remain underexplored. This study examines the effect of leverage, transfer pricing, and earnings management on tax avoidance in primary consumer goods companies listed on the Indonesia Stock Exchange (IDX) over 2022–2024. Using purposive sampling, 18 firms (54 firm-year observations) were analyzed through panel data regression, with the Random Effect Model selected as the best-fit estimator. Tax avoidance is proxied by the Effective Tax Rate (ETR), leverage by the Debt-to-Equity Ratio, transfer pricing by Related Party Sales, and earnings management by discretionary accruals (Modified Jones Model). The model explains 88.33% of the variation in tax avoidance (adjusted R² = 0.8833). Leverage (β = −0.0032, p = 0.0486) and earnings management (β = −0.0095, p < 0.001) significantly reduce the ETR, indicating that both increase tax avoidance, whereas transfer pricing shows no significant effect (p = 0.3027). The findings offer corporate management, investors, and tax authorities a clearer understanding of the financial mechanisms underlying tax avoidance in this sector.