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This study examines the relationship between tax avoidance and the cost of debt capital and the existance of managerial opportunism theory through the moderating effects of corporate governance (family ownership, the ultimate owner, the second largest shareholder, and the effectiveness of board and audit committee) for companies on the Indonesian Stock Exchange between 2008-2012. The results show that tax avoidance has a positive relationship with the cost of debt capital. Furthermore, it is found that concentrated ownership strenghtens the relation between tax avoidance and cost of debt, while the existence of second largest owners weakens the relationship. This study, however, cannot prove that family ownership and the effectiveness of the company’s board commissioners and audit committee gives any impact on the tax avoidance and cost of debt relationship.

The study provides a starting point for further research in the monitoring role of company shareholders on its tax compliance. The result of this study provides a better and clearer picture for companies on the consequence of undertaking tax avoidance. This study is the first that probes the role of a firm’s ultimate shareholder and its second largest shareholder on the relationship between tax avoidance and the cost of debt.

 

tax avoidance, ultimate owner, family ownership, second largest shareholder, corporate governance, cost of debt