Examining the effect of related-party transactions, thin capitalization, and capital intensity on firms’ tax avoidance behaviour: The moderating effect of sales growth

Abstract

This study aims to examine the effects of related-party transactions, thin capitalization, and capital intensity on tax avoidance, as well as to evaluate the moderating role of sales growth. The research is grounded in agency theory and positive accounting theory, employing a quantitative approach using Moderated Regression Analysis. The sample consists of 442 firms selected through purposive sampling, yielding a total of 2,210 firm-year observations from manufacturing companies in the health care, basic materials, industrials, consumer cyclicals, and consumer non-cyclicals subsectors listed on the Indonesia Stock Exchange (IDX) during the period 2019–2023. The findings reveal that related-party transactions, thin capitalization, and capital intensity have a positive effect on tax avoidance. Furthermore, sales growth is found to weaken the effects of related-party transactions, thin capitalization, and capital intensity on tax avoidance. This study provides implications supporting both agency theory and positive accounting theory in explaining the determinants of corporate tax avoidance strategies.