The role of outside directors in tunnelling-related tax avoidance: evidence from Indonesia

Indonesia relies heavily on taxation revenues thus tax avoidance in corporations needs to be minimized. We explore the relationship between tax avoidance and tunneling, specifically whether the presence of outside directors as board members affects this relationship. We examined a sample of listed firms on the Indonesian Stock Exchange from 2016-2020, supplemented with manually collected data from financial reports and observed that when the tunneling approach is used through normal business operations, tax avoidance enables tunneling activities, benefitting controlling shareholders. Results further show that the existence of outside directors as a governance mechanism can moderate the tax avoidance-tunneling relationship.