How Political Connections Shape Sustainability's Impact on Tax Aggressiveness in Indonesia

Abstract

This study examines the effect of corporate sustainability on tax aggressiveness, with political connections as a moderating variable. The population of this study consists of companies listed on the Indonesia Stock Exchange (IDX) from 2017 to 2022. The research method used is panel data analysis with the Moderated Regression Analysis (MRA) approach. The results indicate that corporate sustainability positively influences tax aggressiveness (consistent with agency theory). While political connections significantly increase tax aggressiveness, their moderating effect not only attenuates but completely inverts the positive sustainability-tax aggressiveness relationship, resulting in a negative association (aligning with legitimacy theory). These findings suggest that sustainability reporting may serve as a facade for legitimacy, whereas political connections present both advantages and risks. This study makes theoretical contributions by agency theory and legitimacy perspectives to examine corporate behaviour in emerging markets, particularly Indonesia, while offering practical implications for enhancing regulatory oversight of sustainability disclosures and politically affiliated firms.