The Role of Profit Management as an Intervening Variable Towards Determinants of Firm Value

Abstract

Objective: This study aims to investigate the impact of tax planning, deferred taxation, and excellent corporate governance on firm value, with earnings management serving as a mediating variable. Methods: Regression analysis is used in this study. Textile and garment subsector companies listed on the Indonesia Stock Exchange from 2014 to 2021 comprise the research sample. Results: According to the findings of the study, tax planning and excellent corporate governance have a positive and significant effect on earnings management, whereas deferred taxes have no effect on profits management. Other findings indicate that tax preparation, effective corporate governance, and earnings management all have a positive and significant impact on firm value. However, deferred tax has a considerable negative impact on firm value. Mediation testing shows that earnings management significantly mediates the effect of tax planning and good corporate governance on firm value. However, earnings management does not significantly mediate the effect of deferred taxes on firm value. Conclusions: Conflicts of interest in tax management occur between firm management and tax authorities (tax officials) in the context of tax planning and deferred tax based on agency theory. A conflict of interest develops when company management, which is responsible for managing the firm efficiently, attempts to reduce tax payments in order to boost company earnings. Tax officials, on the other hand, strive to maximize tax collection in compliance with current laws and regulations.