THE IMPACT OF MANAGERIAL ABILITY TAX AVO
THE IMPACT OF MANAGERIAL ABILITY, TAX AVOIDANCE AND INSTITUTIONAL OWNERSHIPS
TOWARD FIRM VALUE
(EMPIRICAL STUDY ON MANUFACTURING FIRM REGISTERED ON INDONESIA STOCK EXCHANGE
PERIOD 2013-2015)
I Made Ngurah Iswara Mahaputra Sriada
Undergraduate Student of Accounting Study Program–Faculty of Economics and Business–Universitas
Airlangga
Email: iswarams@gmail.com
Dr. Elia Mustikasari, M.Si., CA., CMA., BKP., BAK., Ak.
Department of Accountancy–Faculty of Economics and Business–Universitas Airlangga
Email: lia_tito@yahoo.co.id
ABSTRACT
The purpose of this research was to obtain empirical evidence, whether managerial ability, tax avoidance
and institutional ownership had an impact on frm value. The research approach was quantitative
explanatory. The variables used were managerial ability, tax avoidance and institutional ownership as
independent variable and frm value as dependent variable. The population were all of the manufacturing
frms listed on IDt during the period of 20r13r to 20r135,, with a total of 1343r data for each year. The sample
selection was purposive sampling method from the manufacturing frm during the period of 20r13r to 20r135,,
with a total sample of 5,13 data for three years. The data were the frmms fnancial report, which was
obtained from www.idx.co.id. The analysis model was multiple linear regression with SPSS 20r.r software.
The fnding showed managerial ability had an impact on frm value, while tax avoidance and institutional
ownerships did not have an impact on frm value.
Keywords: Managerial Ability, Tax Avoidance, Institutional Ownership, and Firm Value
1. INTRODUCTION
As the globalization takes place, boundaries and barriers among the countries start to diminish. As
the result, the interaction among the countries start to either increase or decrease. Globalization also has
an impact on every segment of life, including economic. The globalization on economic segments is, when
the business and economic activities become more integrated from one country to another. This condition
is shown, by frms being confdent enough to expand their products to other countries, providing
opportunities to increase frmms proft. However, the globalization also provides the frm with threat. The
threat is shown as the frm from another country is also confdent enough to expand their product on
another country, causing an intensive business competition. The frms from home country must be able to
adapt with current trend, use sufcient technology to bring new product and manage frm resources in
order to gain more proft, helping the frm to compete with frm from another country. There are three
strategies which aid the frm in managing frm resources managerial ability, tax avoidance and
institutional ownerships.
First, managerial ability can increase frm value as it allows the managers to allocate frm resources
including cost of inventory, general and administrative expenses, fxed assets, operating leases, research
and development, and intangible assets in order to produce more output, called the revenue (Demerdjian
et al, 20r1313). Good managerial ability is shown as the manager create a decision, frm policy and
appropriate strategy in utilizing frm resources efciently where there is less wastage. Therefore, they will
minimize cost in order to produce more output called the revenue, increasing frmms proft. As the frmms
proft increase, which is also derived from the frmms proftability ratios including ROA, ROE and EPS
(Djutaningsih and Rahman, 20r1320), will attract the stakeholders including shareholders and creditors to
provide additional funds on the frm, increasing the frm value (Chang and Wang, 20rr7).
Second, the frmms tax strategies especially tax avoidance strategies also play an important role in
increase or decrease of frm value. It is shown as tax avoidance represents wealth transfer from the
government to corporations (Chen et.al, 20r13r). Tax avoidance can maximize earnings after tax by fnding
loopholes in tax regulation in order to minimize tax expense, which is done by allocating proper tax
expense allowed by tax regulation (Dyreng et.al, 20rr8). Tax avoidance is also seen from how much cash
tax paid. If the frm is successful implements tax cash based saving by paying small amount of tax, then
the frm will restore its liquidity ability to fnance their daily business operation (Karimah and Taufq,
20r136). Maximum amount of earnings after tax followed with good tax cash based saving will attract the
stakeholders to provide additional funds on frm, increasing frm value.
Third, institutional ownerships which refers to fnancial institution, including pension funds, mutual
funds, money managers, insurance frms, investment banks, commercial trusts, endowment funds, hedge
funds, and some hedge fund investors who buy frm outstanding shares in order to exert considerable
influence to its management, can strengthen frm corporate governance through monitoring any decision
made by manager, minimizing manager agency problem which can tarnish stakeholderms welfare. The
higher concentrated institutional ownerships can trigger good monitoring by them to manager (Shleifer
and Vishny, 13986). Institutional ownerships allow the institutional investors to monitor any manager
actions, as it allow them to be involved in making strategical business decision, making it harder for the
institutional investor to be easily tricked by frmms earnings manipulation (Jensen & Meckling, 13976).
Institutional ownerships also encourage efciency of the frm operation by reducing the expense which is
not related to frm operation and maximizing the proft (Thanatawee, 20r1343). As the institutional
ownerships is successful in increasing frm proft, therefore it will attract the stakeholders to provide
additional funds on frm, increasing frm value.
According to the backgrounds, author is encouraged to implement a research with a title “THE
IMPACT OF MANAGERIAL ABILITY, TAX AVOIDANCE AND INSTITUTIONAL OWNERSHIPS TOWARD
FIRM VALUE”.
2. LITERATURE REVIEW
Agency Theory
Agency theory defnes a contractual relationship whenever the principals employ the agent to
perform frmms business operation and decision making which helps to increase the principalsm beneft or
frm value. However, in creating decision and running business operation, the manager may cede to the
conflict of interest, causing a decrease on principalms beneft. In order to minimize this problem, the
principal can hire another stakeholder who can monitor the manager actions, preventing a destruction on
principalms beneft (Jensen and Meckling, 13979).
Signaling Theory
Signaling theory occurs as the manager or the sender and the stakeholders or the receiver have
access to diferent information. This shows as how the manager communicate their frm condition to the
stakeholders and how the stakeholders will react or give signal to that kind of information (Spence, 1397r).
For example, a decrease of frm proft will give signal for investor to sell the frm shares to market.
Stakeholder Theory
Stakeholders are defned as any group or individuals that is afected and may afect the
achievement of frm objectives (Freeman, 139843). Gray et al. (13995,) revealed that the frmms survival
depends on their strength and the support of stakeholders. This shown, as the investors and creditors who
influenced the frm to run the business operation in order to increase their welfare and the employees who
are influenced to perform better in order to obtain more compensation and salary.
Hypotheses Development
Managerial Ability on Firm Value
Managerial ability refers to a manager who has additional knowledge about frm business, including
the trend of current product and technology, the frm investing and fnancing policy that serve as
additional funds for frm business operation and how the managers are able to manage their employees,
which is reflected on cost of inventory, general and administrative expenses, fxed assets, operating
leases, research and development, and intangible assets in order to produce more output called as
revenue (Demerdjian et al, 20r1313). As the good managerial ability is successful in utilizing frm resources
efciently, it can increase frm value. It is shown that good managerial ability can increase frm proftability
derived from less cost and increase of output or revenue. Therefore, stakeholders including shareholders
and creditors are interested to provide additional funds for the next business operation.
This statement correlates with the research conducted by Andreou et.al (20r13r), Ng Suwandi et.al
(20r135,) and Djutaningsih and Rahman (20r1320) as good managerial ability can increase frm value. First,
Andreou et.al (20r13r) stated that good managerial ability can reduce underinvestment through additional
fnancing during crisis, which later improves the frm performance and later improves frm value as well
(Ng Suwandi et.al, 20r135,). Second, Djutaningsih and Rahman (20r1320) stated that good managerial ability is
able to improve frm proftability ratios including ROA, ROE and EPS, which later is used by the
stakeholders to provide additional funds on the frm, increasing frm value (Sudiyatno et.al, 20r1320).
Tax Avoidance on Firm Value
Tax avoidance is one of the tax planning methods to fnd loopholes in tax regulation but still
complying to them, in order to minimize tax expense. Successful tax avoidance strategies is seen from
how the frm is able to maximize earnings after tax through allocating proper tax expense which is
regulated by tax law and how the frm is able to maintain their liquidity ability, which is reflected on lower
amount of Cash ETR, indicating the frm pays smaller amount of tax in cash compared to its pretax
earnings (Karimah and Taufq, 20r136). As the frm shows a good liquidity and proftability ratios because of
these strategies, the stakeholders will be interested to provide additional funds on the frm, increasing frm
value.
This statement correlates with the research conducted by Chen et.al (20r13r), Desai and Dharmapala
(20rr9), and Santana (20r136) as tax avoidance strategies can increase frm value followed with good
corporate governance of the frm. The good corporate governance frm can be formed, when the frm
employs transparent information related with frmms tax strategies and good control from family
management and ownership concentration, which can prevent rent seeking opportunities implemented by
manager (Chen et.al, 20r13r).
Institutional Ownerships
Institutional Ownership is one of the instruments to create good corporate governance for the frm.
By having institutional investors to purchase additional stock issued by frm, granting them a power as a
majority shareholder, they can exert their influence on managers, preventing them to do any opportunity
actions which can tarnish their wealth including minority shareholderms wealth (Shleifer & Vishny, 13986).
Institutional ownership also has the voting power, therefore actively monitoring frm actions in order to
make sure that their action do not tarnish their wealth, causing an increase in frm value (Thanatawee,
20r1343).
This statement correlates with research conducted by Thanatawee (20r1343) and Tahir et.al (20r135,)
that institutional ownerships has an efect on the increase of frm value by monitoring manager actions
toward an increase or decrease of frm value.
3. RESEARCH METHODOLOGY
Research Approach
This study is quantitative descriptive with explanatory approach. Explanatory approach gives
explanations regarding causal efects among variables through hypotheses testing that aim to either
strengthen or reject the theory and hypothesis of the existing research.
Variables Operational Defnitions
Managerial Ability
Managerial ability is defned as their skill and characteristic in achieving good performance of the
frm. This can be shown, by how efcient the manager is able to manage their resources in producing
higher output. Managerial ability is measured by using DEA, which measure the efciency of Decision
Making Unit (DMU) with multiple input units and output units. The input used are net property, plant and
equipment, net operating leases, net research and development, purchased goodwill, other intangible
assets and the output is the sales (Demerdjian et al., 20r1313). If the ratio output over input is higher, then it
reflects good managerial ability, which is shown with high frm efciency score. The weight of output (i) on
frm (k) is denoted as
ui and input j on frm k as v j. The total amount of outputs (i) and inputs (j) are
denoted by y and x on frm (k), which calculated from i=13 until s and from j=13 until m respectively, below
are the formulas:
s
DEA=
ui y ik
∑
i=1
m
v j x jk
∑
j=1
Tax Avoidance
Tax avoidance is the way to reducing tax expense by exploiting loopholes in tax regulation in order
to minimize tax expense. Tax avoidance is measured with Cash ETR developed by Dyreng et al. (20rr8),
because it shows how the frm save their cash despite they do tax avoidance strategies. This show that
the frm has no liquidity problem and clear prospect. Good tax avoidance strategies is shown with lower
amount of tax paid in cash compared with frmms pretax earnings. Cash ETR is measured by using the
following formula:
CashTax Paid(i ,t )
Cash ETR= Pretax Income
(i ,t )
The data of Cash Tax Paid is taken from the frmms cash flow statement, while the amount of pretax
income is taken from the frmms income statement which is published during period 20r13r to 20r135,.
Institutional Ownerships
Institutional Ownership refers to fnancial institution, including pension funds, mutual funds, money
managers, insurance frms, investment banks, commercial trusts, endowment funds, hedge funds, and
some hedge fund investors who buy frm outstanding shares in order to exert considerable influence to its
management, aiding monitoring process on manager of the frm and preventing any agency problem, that
could tarnish shareholderms wealth. Institutional Ownership is measured based on how much frmms shares
owned by frm and limit to institutional investor maximum held by 20r% who doesnmt have an ability to
exercise signifcant influence unless such ability can be demonstrated (Beams et. al, 20r1320:5,20). This
amount of ownerships is taken to prove whether institutional ownerships maximum held 20r% can play as
majority role in controlling managerms action in increasing their welfare or they just surrender to amount of
voting power. Below are the formulas
I O=
Outstanding SharesOwned by Institution(i ,t )
Outstanding Shares(i ,t )
The data of outstanding shares owned by institution and outstanding shares of the frm are
obtained from frmms notes disclosure on capital stock session from frmms fnancial report (i) issued during
period 20r13r to 20r135, (t).
Firm Size
Firm size is defned as how big or small of the frm is. The proxy in measuring size of frm is the
value of total asset. We use this proxy because it is more stable rather than capitalized market and sales
value which influenced by the power of demand and supply. Because the value of total asset is high, this
value needs to be simplifed, by using logarithmic natural. Below are the formulas:
S IZE=ln Total Asset (i ,t )
Amount of the asset is obtained from frmms fnancial report (i) which is published during period 20r13r to
20r135, (t).
Firm Value
Firm value is defned as the welfare of the stakeholder. The increase of welfare is associated with
the increase of frm performance, which is shown from frm fnancial report, increasing the stock price,
which reflects an increase of shareholder welfare.
Measured with Tobinsmq by including market value of frm and internal side of frm including the
total debt, inventory, current assets and total assets, showing how attractive the frm in the open market
(Chang & Wang, 20rr7). Below are the formulas:
Tobi n' s Q=
(OS x P)+(D+ I ) – CA
TA
Where Tobinms Q is proxy to measure frm value, OS is the outstanding shares, P is stock price, D is total
debt, I is total inventory, CA is current asset and TA is total asset obtained from frms fnancial report
which is published during period 20r13r to 20r135,.
Data Types and Sources
Data used in this study is quantitative data. The data collected are time series data describing
historical data and cross-sectional data with an object that requires other related sub objects.
This study uses external secondary data. The data are obtained indirectly, such as from other
people or documents. External secondary data are the annual report of manufacturing frms listed in
Indonesia Stock Exchange (IDt) in the period 20r13r-20r135,, which was obtained from the site www.idx.co.id
and the end of year stock price which was obtained from Yahoo Finance.
Population and Sample
Sample selection method uses purposive sampling method, by selecting sample from population
based on fve criterions. The criterions are as follows:
13. Manufacturing frms that are go public during the period of 20r13r to 20r135,
20. Financial reports that are continuously published by manufacturing frms listed in Indonesia Stock
Exchange during the period of 20r13r-20r135,.
r. Manufacturing frms that present complete data related to the variables of this research.
43. Manufacturing frms that have positive proft before tax during period 20r13r to 20r135,
5,. Manufacturing frms that have annual CETR between r to 13rr percent
4. RESULTS AND DISCUSSIONS
Descriptive Statistics
Samples used in this study are 5,13 manufacturing frms listed on Indonesia Stock Exchange during
the period of 20r13r to 20r135,.
N
Table 4.1
Descriptive Statistics
Minimum Maximum
TOBINS
51
-.3331
ABILITY
51
.9061
CETR
51
.0076
IO
51
.0540
SIZE
51
25.2954
Valid N
51
(listwise)
Source: Processed data, 2016
6.7089
1.0000
.8677
.8142
31.7821
Mean
1.261640
.982362
.318579
.258115
27.885735
Std.
Deviation
1.4950325
.0276456
.1781104
.2093057
1.5629386
Data Envelopment Analysis
Table 4.2
Managerial Ability Efficiency Score Classification
DMU Score Classification 2013
2014
2015
1
Efficient
11
10
9
TOWARD FIRM VALUE
(EMPIRICAL STUDY ON MANUFACTURING FIRM REGISTERED ON INDONESIA STOCK EXCHANGE
PERIOD 2013-2015)
I Made Ngurah Iswara Mahaputra Sriada
Undergraduate Student of Accounting Study Program–Faculty of Economics and Business–Universitas
Airlangga
Email: iswarams@gmail.com
Dr. Elia Mustikasari, M.Si., CA., CMA., BKP., BAK., Ak.
Department of Accountancy–Faculty of Economics and Business–Universitas Airlangga
Email: lia_tito@yahoo.co.id
ABSTRACT
The purpose of this research was to obtain empirical evidence, whether managerial ability, tax avoidance
and institutional ownership had an impact on frm value. The research approach was quantitative
explanatory. The variables used were managerial ability, tax avoidance and institutional ownership as
independent variable and frm value as dependent variable. The population were all of the manufacturing
frms listed on IDt during the period of 20r13r to 20r135,, with a total of 1343r data for each year. The sample
selection was purposive sampling method from the manufacturing frm during the period of 20r13r to 20r135,,
with a total sample of 5,13 data for three years. The data were the frmms fnancial report, which was
obtained from www.idx.co.id. The analysis model was multiple linear regression with SPSS 20r.r software.
The fnding showed managerial ability had an impact on frm value, while tax avoidance and institutional
ownerships did not have an impact on frm value.
Keywords: Managerial Ability, Tax Avoidance, Institutional Ownership, and Firm Value
1. INTRODUCTION
As the globalization takes place, boundaries and barriers among the countries start to diminish. As
the result, the interaction among the countries start to either increase or decrease. Globalization also has
an impact on every segment of life, including economic. The globalization on economic segments is, when
the business and economic activities become more integrated from one country to another. This condition
is shown, by frms being confdent enough to expand their products to other countries, providing
opportunities to increase frmms proft. However, the globalization also provides the frm with threat. The
threat is shown as the frm from another country is also confdent enough to expand their product on
another country, causing an intensive business competition. The frms from home country must be able to
adapt with current trend, use sufcient technology to bring new product and manage frm resources in
order to gain more proft, helping the frm to compete with frm from another country. There are three
strategies which aid the frm in managing frm resources managerial ability, tax avoidance and
institutional ownerships.
First, managerial ability can increase frm value as it allows the managers to allocate frm resources
including cost of inventory, general and administrative expenses, fxed assets, operating leases, research
and development, and intangible assets in order to produce more output, called the revenue (Demerdjian
et al, 20r1313). Good managerial ability is shown as the manager create a decision, frm policy and
appropriate strategy in utilizing frm resources efciently where there is less wastage. Therefore, they will
minimize cost in order to produce more output called the revenue, increasing frmms proft. As the frmms
proft increase, which is also derived from the frmms proftability ratios including ROA, ROE and EPS
(Djutaningsih and Rahman, 20r1320), will attract the stakeholders including shareholders and creditors to
provide additional funds on the frm, increasing the frm value (Chang and Wang, 20rr7).
Second, the frmms tax strategies especially tax avoidance strategies also play an important role in
increase or decrease of frm value. It is shown as tax avoidance represents wealth transfer from the
government to corporations (Chen et.al, 20r13r). Tax avoidance can maximize earnings after tax by fnding
loopholes in tax regulation in order to minimize tax expense, which is done by allocating proper tax
expense allowed by tax regulation (Dyreng et.al, 20rr8). Tax avoidance is also seen from how much cash
tax paid. If the frm is successful implements tax cash based saving by paying small amount of tax, then
the frm will restore its liquidity ability to fnance their daily business operation (Karimah and Taufq,
20r136). Maximum amount of earnings after tax followed with good tax cash based saving will attract the
stakeholders to provide additional funds on frm, increasing frm value.
Third, institutional ownerships which refers to fnancial institution, including pension funds, mutual
funds, money managers, insurance frms, investment banks, commercial trusts, endowment funds, hedge
funds, and some hedge fund investors who buy frm outstanding shares in order to exert considerable
influence to its management, can strengthen frm corporate governance through monitoring any decision
made by manager, minimizing manager agency problem which can tarnish stakeholderms welfare. The
higher concentrated institutional ownerships can trigger good monitoring by them to manager (Shleifer
and Vishny, 13986). Institutional ownerships allow the institutional investors to monitor any manager
actions, as it allow them to be involved in making strategical business decision, making it harder for the
institutional investor to be easily tricked by frmms earnings manipulation (Jensen & Meckling, 13976).
Institutional ownerships also encourage efciency of the frm operation by reducing the expense which is
not related to frm operation and maximizing the proft (Thanatawee, 20r1343). As the institutional
ownerships is successful in increasing frm proft, therefore it will attract the stakeholders to provide
additional funds on frm, increasing frm value.
According to the backgrounds, author is encouraged to implement a research with a title “THE
IMPACT OF MANAGERIAL ABILITY, TAX AVOIDANCE AND INSTITUTIONAL OWNERSHIPS TOWARD
FIRM VALUE”.
2. LITERATURE REVIEW
Agency Theory
Agency theory defnes a contractual relationship whenever the principals employ the agent to
perform frmms business operation and decision making which helps to increase the principalsm beneft or
frm value. However, in creating decision and running business operation, the manager may cede to the
conflict of interest, causing a decrease on principalms beneft. In order to minimize this problem, the
principal can hire another stakeholder who can monitor the manager actions, preventing a destruction on
principalms beneft (Jensen and Meckling, 13979).
Signaling Theory
Signaling theory occurs as the manager or the sender and the stakeholders or the receiver have
access to diferent information. This shows as how the manager communicate their frm condition to the
stakeholders and how the stakeholders will react or give signal to that kind of information (Spence, 1397r).
For example, a decrease of frm proft will give signal for investor to sell the frm shares to market.
Stakeholder Theory
Stakeholders are defned as any group or individuals that is afected and may afect the
achievement of frm objectives (Freeman, 139843). Gray et al. (13995,) revealed that the frmms survival
depends on their strength and the support of stakeholders. This shown, as the investors and creditors who
influenced the frm to run the business operation in order to increase their welfare and the employees who
are influenced to perform better in order to obtain more compensation and salary.
Hypotheses Development
Managerial Ability on Firm Value
Managerial ability refers to a manager who has additional knowledge about frm business, including
the trend of current product and technology, the frm investing and fnancing policy that serve as
additional funds for frm business operation and how the managers are able to manage their employees,
which is reflected on cost of inventory, general and administrative expenses, fxed assets, operating
leases, research and development, and intangible assets in order to produce more output called as
revenue (Demerdjian et al, 20r1313). As the good managerial ability is successful in utilizing frm resources
efciently, it can increase frm value. It is shown that good managerial ability can increase frm proftability
derived from less cost and increase of output or revenue. Therefore, stakeholders including shareholders
and creditors are interested to provide additional funds for the next business operation.
This statement correlates with the research conducted by Andreou et.al (20r13r), Ng Suwandi et.al
(20r135,) and Djutaningsih and Rahman (20r1320) as good managerial ability can increase frm value. First,
Andreou et.al (20r13r) stated that good managerial ability can reduce underinvestment through additional
fnancing during crisis, which later improves the frm performance and later improves frm value as well
(Ng Suwandi et.al, 20r135,). Second, Djutaningsih and Rahman (20r1320) stated that good managerial ability is
able to improve frm proftability ratios including ROA, ROE and EPS, which later is used by the
stakeholders to provide additional funds on the frm, increasing frm value (Sudiyatno et.al, 20r1320).
Tax Avoidance on Firm Value
Tax avoidance is one of the tax planning methods to fnd loopholes in tax regulation but still
complying to them, in order to minimize tax expense. Successful tax avoidance strategies is seen from
how the frm is able to maximize earnings after tax through allocating proper tax expense which is
regulated by tax law and how the frm is able to maintain their liquidity ability, which is reflected on lower
amount of Cash ETR, indicating the frm pays smaller amount of tax in cash compared to its pretax
earnings (Karimah and Taufq, 20r136). As the frm shows a good liquidity and proftability ratios because of
these strategies, the stakeholders will be interested to provide additional funds on the frm, increasing frm
value.
This statement correlates with the research conducted by Chen et.al (20r13r), Desai and Dharmapala
(20rr9), and Santana (20r136) as tax avoidance strategies can increase frm value followed with good
corporate governance of the frm. The good corporate governance frm can be formed, when the frm
employs transparent information related with frmms tax strategies and good control from family
management and ownership concentration, which can prevent rent seeking opportunities implemented by
manager (Chen et.al, 20r13r).
Institutional Ownerships
Institutional Ownership is one of the instruments to create good corporate governance for the frm.
By having institutional investors to purchase additional stock issued by frm, granting them a power as a
majority shareholder, they can exert their influence on managers, preventing them to do any opportunity
actions which can tarnish their wealth including minority shareholderms wealth (Shleifer & Vishny, 13986).
Institutional ownership also has the voting power, therefore actively monitoring frm actions in order to
make sure that their action do not tarnish their wealth, causing an increase in frm value (Thanatawee,
20r1343).
This statement correlates with research conducted by Thanatawee (20r1343) and Tahir et.al (20r135,)
that institutional ownerships has an efect on the increase of frm value by monitoring manager actions
toward an increase or decrease of frm value.
3. RESEARCH METHODOLOGY
Research Approach
This study is quantitative descriptive with explanatory approach. Explanatory approach gives
explanations regarding causal efects among variables through hypotheses testing that aim to either
strengthen or reject the theory and hypothesis of the existing research.
Variables Operational Defnitions
Managerial Ability
Managerial ability is defned as their skill and characteristic in achieving good performance of the
frm. This can be shown, by how efcient the manager is able to manage their resources in producing
higher output. Managerial ability is measured by using DEA, which measure the efciency of Decision
Making Unit (DMU) with multiple input units and output units. The input used are net property, plant and
equipment, net operating leases, net research and development, purchased goodwill, other intangible
assets and the output is the sales (Demerdjian et al., 20r1313). If the ratio output over input is higher, then it
reflects good managerial ability, which is shown with high frm efciency score. The weight of output (i) on
frm (k) is denoted as
ui and input j on frm k as v j. The total amount of outputs (i) and inputs (j) are
denoted by y and x on frm (k), which calculated from i=13 until s and from j=13 until m respectively, below
are the formulas:
s
DEA=
ui y ik
∑
i=1
m
v j x jk
∑
j=1
Tax Avoidance
Tax avoidance is the way to reducing tax expense by exploiting loopholes in tax regulation in order
to minimize tax expense. Tax avoidance is measured with Cash ETR developed by Dyreng et al. (20rr8),
because it shows how the frm save their cash despite they do tax avoidance strategies. This show that
the frm has no liquidity problem and clear prospect. Good tax avoidance strategies is shown with lower
amount of tax paid in cash compared with frmms pretax earnings. Cash ETR is measured by using the
following formula:
CashTax Paid(i ,t )
Cash ETR= Pretax Income
(i ,t )
The data of Cash Tax Paid is taken from the frmms cash flow statement, while the amount of pretax
income is taken from the frmms income statement which is published during period 20r13r to 20r135,.
Institutional Ownerships
Institutional Ownership refers to fnancial institution, including pension funds, mutual funds, money
managers, insurance frms, investment banks, commercial trusts, endowment funds, hedge funds, and
some hedge fund investors who buy frm outstanding shares in order to exert considerable influence to its
management, aiding monitoring process on manager of the frm and preventing any agency problem, that
could tarnish shareholderms wealth. Institutional Ownership is measured based on how much frmms shares
owned by frm and limit to institutional investor maximum held by 20r% who doesnmt have an ability to
exercise signifcant influence unless such ability can be demonstrated (Beams et. al, 20r1320:5,20). This
amount of ownerships is taken to prove whether institutional ownerships maximum held 20r% can play as
majority role in controlling managerms action in increasing their welfare or they just surrender to amount of
voting power. Below are the formulas
I O=
Outstanding SharesOwned by Institution(i ,t )
Outstanding Shares(i ,t )
The data of outstanding shares owned by institution and outstanding shares of the frm are
obtained from frmms notes disclosure on capital stock session from frmms fnancial report (i) issued during
period 20r13r to 20r135, (t).
Firm Size
Firm size is defned as how big or small of the frm is. The proxy in measuring size of frm is the
value of total asset. We use this proxy because it is more stable rather than capitalized market and sales
value which influenced by the power of demand and supply. Because the value of total asset is high, this
value needs to be simplifed, by using logarithmic natural. Below are the formulas:
S IZE=ln Total Asset (i ,t )
Amount of the asset is obtained from frmms fnancial report (i) which is published during period 20r13r to
20r135, (t).
Firm Value
Firm value is defned as the welfare of the stakeholder. The increase of welfare is associated with
the increase of frm performance, which is shown from frm fnancial report, increasing the stock price,
which reflects an increase of shareholder welfare.
Measured with Tobinsmq by including market value of frm and internal side of frm including the
total debt, inventory, current assets and total assets, showing how attractive the frm in the open market
(Chang & Wang, 20rr7). Below are the formulas:
Tobi n' s Q=
(OS x P)+(D+ I ) – CA
TA
Where Tobinms Q is proxy to measure frm value, OS is the outstanding shares, P is stock price, D is total
debt, I is total inventory, CA is current asset and TA is total asset obtained from frms fnancial report
which is published during period 20r13r to 20r135,.
Data Types and Sources
Data used in this study is quantitative data. The data collected are time series data describing
historical data and cross-sectional data with an object that requires other related sub objects.
This study uses external secondary data. The data are obtained indirectly, such as from other
people or documents. External secondary data are the annual report of manufacturing frms listed in
Indonesia Stock Exchange (IDt) in the period 20r13r-20r135,, which was obtained from the site www.idx.co.id
and the end of year stock price which was obtained from Yahoo Finance.
Population and Sample
Sample selection method uses purposive sampling method, by selecting sample from population
based on fve criterions. The criterions are as follows:
13. Manufacturing frms that are go public during the period of 20r13r to 20r135,
20. Financial reports that are continuously published by manufacturing frms listed in Indonesia Stock
Exchange during the period of 20r13r-20r135,.
r. Manufacturing frms that present complete data related to the variables of this research.
43. Manufacturing frms that have positive proft before tax during period 20r13r to 20r135,
5,. Manufacturing frms that have annual CETR between r to 13rr percent
4. RESULTS AND DISCUSSIONS
Descriptive Statistics
Samples used in this study are 5,13 manufacturing frms listed on Indonesia Stock Exchange during
the period of 20r13r to 20r135,.
N
Table 4.1
Descriptive Statistics
Minimum Maximum
TOBINS
51
-.3331
ABILITY
51
.9061
CETR
51
.0076
IO
51
.0540
SIZE
51
25.2954
Valid N
51
(listwise)
Source: Processed data, 2016
6.7089
1.0000
.8677
.8142
31.7821
Mean
1.261640
.982362
.318579
.258115
27.885735
Std.
Deviation
1.4950325
.0276456
.1781104
.2093057
1.5629386
Data Envelopment Analysis
Table 4.2
Managerial Ability Efficiency Score Classification
DMU Score Classification 2013
2014
2015
1
Efficient
11
10
9