Analysis of thin capitalization on listed companies in Indonesia and Australia

Abstract

Thin capitalization is tax planning that is carried out by optimizing corporate debt. This tax planning will increase the interest expense and decrease tax expense, thereby increasing net income and firm value. Thin capitalization is measured by the ratio of total debt to capital. This study analyzed the factors that influence thin capitalization in companies in Indonesia and Australia. The regression test results showed that companies with overseas subsidiaries, companies with subsidiaries in haven countries, and companies that carry out export activities have a smaller thin capitalization value. The results of the study were generally not in line with previous studies, which state that these variables increase thin capitalization. This study also found that foreign ownership strengthens the relationship between foreign exposure and thin capitalization.