The Effect of ESG on Tax Avoidance with Politically Exposed Person as a Moderating Variable

Abstract

This study examines the effect of Environmental, Social, and Governance (ESG) performance on tax avoidance and investigates the moderating role of Politically Exposed Persons (PEP) in Indonesian mining companies listed on the Indonesia Stock Exchange during 2018–2023. Using a quantitative approach, secondary data were collected from annual reports, ORBIS, and the ESG Intelligence dataset of Universitas Airlangga. The sample consists of 24 companies with 144 firm-year observations selected through purposive sampling. Panel data regression with the Random Effects Model (REM) was employed for hypothesis testing. The findings indicate that ESG has a negative but insignificant effect on tax avoidance, suggesting that higher ESG performance does not necessarily reduce corporate tax avoidance practices. Furthermore, PEP does not significantly moderate the relationship between ESG and tax avoidance when measured using the Effective Tax Rate (ETR). However, additional analysis using Book-Tax Difference (BTD) reveals a significant negative interaction between ESG and PEP. These findings suggest that ESG implementation has not been consistently integrated into corporate tax strategies.