Analysis of Corporate Social Responsibility (CSR) Disclosure Toward Tax Aggressivity and Its Impacts on Investor Reaction

This study was administered to analyze and obtain empirical evidence regarding Corporate Social Responsibility (CSR) disclosure on tax aggressiveness and the impact of corporate CSR disclosure and tax aggressiveness on investor reactions. The population of this study were manufacturing companies listed on the Indonesia Stock Exchange (BEI) in 2016-2018. Samples were 147 companies selected using purposive sampling technique. Path analysis was performed to analyze the data of this study. The results of this study showed that CSR disclosure negatively affected the tax aggressiveness and CSR affected investor reactions. Further, tax aggressiveness did not affect investor reactions. In addition, CSR disclosure and tax aggressiveness did not share simultaneous influence on investor reactions.


Objectives of the research
This study was conducted to examine and obtain empirical evidences related to CSR disclosure on Tax Aggressiveness and to see how CSR disclosure and Tax Aggressiveness affect Investor Reaction.

Benefit of the research.
1. The results of this study can be used as an insights for investors in making investment decisions to companies.
2. This study also provides fruitful inputs regarding the importance of CSR disclose in sustainability reporting and to encourage companies to raise greater social awareness in making any decision. 3. This study also proposes recommendations for the government in creating laws and regulations for the quality improvement of environmental-based accounting standards.

II. LITERATURE REVIEW 2.1 Corporate Social Responsibility
Companies disclose their corporate social responsibility in sustainability reporting. Sustainability reporting is a report on economic policy, social environment that affects performance and products within the context of sustainable development. CSR shows companies' seriousness in maintaining business ethics to reduce negative impacts and increase companies' operational activities to all stakeholders in the economy and social environment to achieve sustainable development goals. The revised PSAK No. 1 of 2009 explains that every company in Indonesia is given freedom to disclose their CSR information in annual reports. It is also stipulated in Law no. 40 of 2007 and supported by PP. 47 of 2012. At present, comprehensive CSR reports are written based on the Global Reporting Initiative's Sustainability Reporting Guidelines (GRI). GRI provide common ground that make CSR disclosure in the reports consistent. GRI provide guidelines that apply in global scope for the preparation of reports on companies' economic, environmental and social dimensions, products and services. Hlaing (2012) stated that tax aggressiveness is an effort of tax planning to reduce and make the amount of tax rate more effective. Whilst, (Chen et al 2014): "Between tax avoidance and tax evasion, there exist potential gray area of aggressiveness. This gray are exists because there are tax shelters beyond what is specifically allowed by the tax low and the tax law does not specifically address all possible tax transaction. A bright line does not exist between tax avoidance and tax evasion because neither term adequately describes all transaction. Therefore, aggressive transactions and decision-making may potentially become either tax avoidance or tax evasion issues". Lanis dan Richardson, 2015; proxied Tax Aggressiveness and Effective Tax Rates (ETR).

Investor Reaction
Basically, investors appreciate the implementation of Corporate Social Responsibility, through which they could analyze the sustainability of a company. Investor reactions can be seen from the abnormal return (AT) value. Information that is useful for investors is if the one that triggers reactions to make transactions in the capital market. Investors' trust greatly influences the stock market reaction.
Jogiyanto (2015) defined "abnormal return as the gap between actual return and expected return". Abnormal return will be positive if the return obtained is greater than the expected return. Meanwhile, abnormal return will be negative if the return obtained is smaller than the expected return.

Previous Studies
In a previous study the authors conducted in 2018 and 2019 (Nela, S and Aulia, B (2018) it was found that "CSR had a significant negative effect on tax aggressiveness and profitability had no effect on tax aggressiveness". Nela, S and Widia, S (2019) found that "Profitability and company size had an effect on tax aggressiveness, while leverage did not ".
A study done by Lanis, R., & Richardson, 2012 stated that CSR disclosure has a significant negative effect on tax aggressiveness, social investment is the company's success strategy. In line with Lin, K. Z. Cheng, S, & Zhang, F. 2017; Watson, L, 2015; empirical evidences showed that CSR had a negative effect on tax avoidance. Issam, Laguir, Raffaele Stagliano and Elbaz Jamal 2015, stated that CSR had a significant positive relationship to tax aggressiveness. Likewise, Khaoula (2013) found that the CSR was a significant variable that had a positive Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.11, No.22, 2020 effect on tax aggressiveness (Richardson, Wang, & Zhang, 2016 Wenbin Sun, Shanji Yao (2018) explained that CSR disclosure had a positive effect on encouraging company shareholder value, but the effect changed negatively when the company was excessively engaged in CSR activities. Nuzula and Kato, 2010 stated that corporate CSR disclosure in Japan obtained positive responses form investors. Furhter, Hanlon, M. and Slemrod, J. 2009 found that market reaction was highly dependent on how investors perceive the level of tax aggressiveness, while Frank, M., Lynch, L., Rego, S., 2009 showed that investors did not completely use accrual information and financial reports in making purchase decisions. Thus, investors do not react to tax aggressiveness.
The development of the model in this study includes what was not examined in prior studies regarding effect of CSR disclosure on tax aggressiveness. Other studies examined the influence of aggressiveness on corporate value, whereas in this study, the researchers put into account the level of corporate CSR disclosure on tax aggressiveness and examined the direct effect of CSR and aggressiveness on investor reactions. The roadmap of this study is presented in the following Figure.

III.METHOD OF THE STUDY 3.1 Types and Sources of Data
This study is a quantitative study, in which data were collected from companies. The hypotheses of this study were tested quantitatively based on numerical data analysis using statistical methods. The data of this study were secondary data obtained from companies Annual Reports and reports on stock trading transactions.

Population and Samples
The population of this study included manufacturing companies listed on the Indonesia Stock Exchange (IDX) in 2016-2018. Purposive sampling technique was performed to select companies based on several criteria; manufacturing companies listed on the Indonesia Stock Exchange for the period 2016-2018, manufacturing companies with incomplete data, companies that had taxable profit compensation. The sampling resulted in 49 samples times 3 years. Hence, 147 samples of manufacturing companies listed on the Indonesia Stock Exchange were involved in this study.

Data Analysis Method
The data obtained in this study were analyzed using Path Analysis. Path analysis is used to analyze the pattern of relationship among research variables. Path analysis also showed both direct and indirect influences of independent variables on dependent variables. The influence of each variable was shown in the results of t-test. Prior to t-test, fit model test had been performed using F-test and Determination Coefficient.

IV. RESULTS AND DISCUSSIONS 4.1 Hypotheses Testing
This section explains the statistical measurement used in performing the path analysis in this study.

The Influence of Corporate Social Responsibillity Disclosure on Tax Aggressiveness
The results of the t-test done to analyze wheter corporate social responsibility had any influence on tax aggressiveness are presented in Table 1.
Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.11, No.22, 2020  The path coefficient using structural equations to test the influence of corporate social responsibility disclosure (X) on Tax Aggressiveness is shown as follows. Y = -0.191X + 0.98ε1; R 2 YX = 0.038 The data processing resulted in a t-value for variable X of -0.191 with a prob (sig) value = 0.027 for α = 0.05. The prob (sig) value (0.027> 0.05) shows that H0 is rejected and Ha is accepted. The residual coefficient PYε1 = √ (1 -0.038) = 0.96. These results indicate that corporate social responsibility has a negative influence on tax aggressiveness. The R square that reflects the influence of CSR disclosure on tax aggressiveness is 3.8%, indicating that corporate social responsibility disclosure affects the level of tax aggressiveness.
In this study, corporate social responsibility disclosure was found negatively related to tax aggressiveness. Corporate social responsibility disclosure will strengthen companies' images as they will be engaged in various social activities, activities to protect the environment, and they will show greater information transparency. Therefore, companies with adequate corporate social responsibility disclosure are less likely to do tax avoidance. Such positive images will increase shareholders' profits. The results of this study are consistent with prior studies done by (Weston 2015 andRichardson, 2012).

The Influence of Corporate Social Responsibility Disclosure on Investor Reaction
The second structural model obtained in this study presenting the relationship among variable X , Y and Z is presented in Table 2 Table 2  To answer the research problem on whether the disclosure of corporate social responsibility affects investors' reactions, t-test statistic was tested. The results of the test show that if the indirect value> direct value, X indirectly influences Z through Y and vice versa. The direct effect of X on Z is (-0.042) and the indirect effect of X through Y on Z with (-0.191 x-0.124 = 0.02) is 0.02. The results show that corporate social responsibility (CSR) has an indirect value (-0.02 <-0.042). Variable X indirectly affects Z though. Therefore, H0 is rejected and Ha is accepted.
It can be concluded from the results of the test that corporate social responsibility affects investor reactions. The results of this study are in line with the ones of (Nuzula & Kato 2012; Wenbin Sun, Shanji Yao 2018), in which CSR was also found have an influence on investor reactions. The results of this study imply that the disclosure of corporate social responsibility in annual report reflects companies' current condition and future prospects. Information regarding CSR disclosure is useful for investors in making investment decisions.

The Influence of Tax Aggressiveness on Investor Reaction
To answer the research problem on whether tax aggressiveness has an effect on investor reaction, t-test statistic was performed. The results of the test showed t-value for variable Y was -1.467 with a significance value = 0.145, the value of α = 0.05. The significance value (0.145> 0.05) shows that H0 could not be rejected, while Ha was rejected. The results imply that tax aggressiveness has no effect on investor reactions.
The results of this study are in line with the results of research by Frank, M., Lynch, L., Rego, S., (2009) showing that investors do not fully use accrual information and financial reports in making share purchase decisions and tax aggressiveness does not affect investor reaction.

V. CONCLUSIONS AND SUGGESTIONS 5.1 Conclusions
Based on the discussions, conclusions were drawn as follows.
1. Corporate social responsibility disclosure negatively affected tax aggressiveness. 2. Corporate social responsibility disclosure affected investor reaction. 3. Tax aggressiveness did not affect investor reaction

Suggestions
1. There results of this study can be employed by companies in implementing their CSR and taxation decisions to prevent them from conducting tax aggressiveness which will affect investors in making investment decision. The government can also use the information obtained in this study in creating laws and regulations related to tax and CSR. 2. Both investors and company management are expected to make any decision carefully based on the tax regulations that apply. Instead of merely obeying the regulations, company management should perform more intensive monitoring to avoid making any tax avoidance. 3. The government is encouraged to strengthen the monitoring system toward companies that submit their tax reports to minimize the occurrence of tax avoidance.