International Journal of Academe and Industry Research

Volume 6 Issue 2 June 2025

DOI: https://doi.org/10.53378/ijair.353192

The moderating role of firm size in the

relationship between financial performance
and tax avoidance
1
Felicia Auryn, 2Galumbang Hutagalung, 3Enda Noviyanti
Simorangkir & 4Sauh Hwee Teng

Abstract

This study examines the influence of leverage, profitability, and profit growth on tax
avoidance, with firm size as a moderating variable. Using a quantitative approach, the
research analyzes sixteen health sector companies listed on the Indonesia Stock Exchange
(IDX) during the period 2019–2023. The data were analyzed using Partial Least Squares
Structural Equation Modeling (PLS-SEM). The findings indicate that leverage and profit
growth do not significantly affect tax avoidance, while profitability has a positive and
significant effect. Furthermore, firm size does not moderate the relationship between
leverage, profitability, and profit growth on tax avoidance. These results highlight that
internal financial indicators may influence tax avoidance behavior more directly than
organizational scale. Beyond regulatory implications, the findings underscore the
importance for firms to align financial performance with ethical tax practices, and for
stakeholders to consider non-size-related factors when evaluating corporate tax behavior.
Keywords: tax avoidance, leverage, profitability, growth ratio, firm size, health companies

Article History:
Received: March 6, 2025 Revised: April 11, 2025
Accepted: April 22, 2025 Published online: June 7, 2025

Suggested Citation:
Auryn, F., Hutagalung, G., Simorangkir, E.N. & Teng, S.H. (2025). The moderating role of firm size in the
relationship between financial performance and tax avoidance. International Journal of Academe and Industry
Research, 6(2), 171-190. https://doi.org/10.53378/ijair.353192

About the authors:

1Corresponding author. Student at Department of Accounting, Faculty of Economics, Universitas Prima Indonesia, Medan,
North Sumatra, Indonesia. Email : feliciaauryn1998@gmail.com.
2Lecturer of Department of Accounting, Faculty of Economics, Universitas Prima Indonesia, Medan, North Sumatra,

Indonesia. Email: galumbanghutagalung@unprimdn.ac.id.

3Lecturer of Department of Accounting, Faculty of Economics, Universitas Prima Indonesia, Medan, North Sumatra,

Indonesia. Email: endanoviyantisimorangkir@unprimdn.ac.id.

4Lecturer of Department of Accounting, Faculty of Economics, Universitas Prima Indonesia, Medan, North Sumatra,

Indonesia. Email: tengsauhhwee@unprimdn.ac.id.

© The author (s). Published by Institute of Industry and Academic Research Incorporated.
This is an open-access article published under the Creative Commons Attribution (CC BY 4.0) license,
which grants anyone to reproduce, redistribute and transform, commercially or non-commercially, with
proper attribution. Read full license details here: https://creativecommons.org/licenses/by/4.0/.
172 | International Journal of Academe and Industry Research, Volume 6 Issue 2

1. Introduction
Tax avoidance is a phenomenon that has a significant impact on state revenue, fiscal
balance, and overall economic stability. The economic downturn during the COVID-19
pandemic has resulted in significant changes to the global tax system. The decline in economic
activity resulted in revenue cuts for companies which triggered a government response to
provide tax relief and change tax policies to respond to a difficult economy, this caused the
level of compliance of the public and companies in paying taxes to decline. From this
phenomenon, health sector is one of the sectors with a major impact on the Indonesian
economy, significant contributing to public welfare and economic growth and resulting in
companies optimizing tax obligations legally by avoiding taxes. This practice not only affects
the amount of tax received by the government, but also reflects how companies manage their
financial resources to maximize profits. With the increasing complexity of tax regulations and
economic globalization, it is important to understand the factors that encourage or suppress tax
avoidance (Hoppe et al., 2021; Nguyen & Nguyen, 2019; Saptono et al., 2024), especially large
companies that have more complex financial structures. Therefore, this paper aims to provide
insights for regulators and companies in designing more effective tax policies by re-examining
the relationship between financial variables and tax avoidance.
Tax avoidance strategies can be influenced by the debt-to-equity ratio (DER), which
measures how much debt and equity a company has. Companies with high DER can take
advantage of high interest expenses and reduce taxable income by choosing a financial
structure that is more debt-based. However, while it may provide advantages in tax deductions,
high DER also carries risks related to changes in interest rates and financial market conditions.
While ensuring compliance with tax regulations and avoiding legal and reputational risks,
controlling net income, financial structure, and tax risks must be carefully considered.
Empirical evidence shows contrasting effect of DER on tax avoidance; positive significant
effect (Firmanzah & Marsoem, 2023; Effendi & Trisnawati, 2023; Cynthia et al., 2023) and
partially negative and insignificant effect (Rani et al., 2023; Safitri & Oktris, 2023; Apriatna
& Oktris, 2023).
Companies that are effective in tax avoidance can utilize Return on Assets (ROA),
measure of company's ability to generate net income from its assets, to optimize net income
with strategies such as transfer pricing and financial statement management. A high ROA may
also reflect investment policies and financial structures that support tax reduction, such as the
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use of debt. Investment and asset allocation decisions may also be influenced by tax avoidance
considerations that can help achieve optimal ROA and reduce the impact of taxes. Although
ROA provides an indication of the efficiency of asset management, it is important to ensure
that tax avoidance practices are always in accordance with tax regulations and support
sustainable business growth. Research has contrasting results with ROA has a positive and
significant effect on tax avoidance (Rani et al., 2023; Widadi et al., 2022; Effendi & Trisnawati,
2022) and partially cannot affect tax avoidance (Firmanzah & Marsoem, 2023; Apriatna &
Oktris, 2022; Sriyono & Andesto, 2022).
Tax avoidance strategies can also be influenced by corporate profit growth. Companies
that experience increased profits have the opportunity to optimize their financial structure by
reducing taxable profits through debt and interest expenses. Earnings growth also allows
companies to manage their net income more efficiently, including adjusting their financial
statements to support tax avoidance, such as investment decisions, resource allocation, and
international tax considerations. Companies can look for ways to maximize fiscal benefits and
minimize legal risks with legally valid tax avoidance strategies, however, they must consider
ethics, reputation, tax compliance and maintain stakeholder trust. According to Khomsiyah et
al. (2021), Stephanie and Herijawati (2022), and Ichwan and Riana (2023), earnings growth
has a positive effect on tax avoidance. However, findings of Sriyono and Andesto (2022),
Cynthia et al. (2023) and Sawitri et al. (2022) showed that earnings growth cannot affect tax
avoidance.
Firm size is frequently regarded as a key determinant in shaping corporate tax
avoidance strategies. Larger firms generally possess greater access to financial resources, legal
expertise, and advanced tax planning capabilities, enabling them to design and implement more
sophisticated tax avoidance schemes. In addition, large firms often benefit from broader access
to financing instruments, such as debt, which can be strategically structured to reduce taxable
income. Their influence over regulatory environments—through lobbying efforts or active
engagement in policy-making—can also result in more favorable tax treatment. Nevertheless,
although tax avoidance remains within the bounds of legality, it must comply with applicable
tax regulations and ethical standards to prevent potential legal consequences and reputational
damage. The moderating effect of firm size can be theoretically supported by Agency Theory,
which emphasizes the conflict of interest between shareholders (principals) and management
(agents). In large firms, complex organizational structures can lead to increased information
174 | International Journal of Academe and Industry Research, Volume 6 Issue 2

asymmetry, thereby granting greater managerial discretion in making financial decisions,

including tax-related strategies. However, these firms are also more likely to be subjected to
public scrutiny and rigorous regulatory oversight, which may discourage aggressive tax
avoidance behavior. Thus, firm size may either strengthen or weaken the relationship between
financial performance indicators and tax avoidance, depending on the specific organizational
and regulatory context. For instance, empirical evidence shows two contrasting results, on one
hand, company size cannot moderate the relationship between DER and ROA with tax
avoidance (Rani et al., 2023; Cynthia et al., 2023) and the other hand, company size can
moderate the relationship between ROA on tax avoidance (Putty & Badjuri, 2023).
This study explores whether firm size moderates the relationship between financial
performance, measured by DER, ROA, and growth ratio (GR), and tax avoidance. These
financial indicators are assumed to influence the likelihood of a company engaging in tax
avoidance strategies. Firm size is hypothesized to strengthen or weaken these relationships,
given its influence on a company’s access to financial resources, capacity for tax planning, and
level of public accountability. This study specifically focuses on companies operating within
the Indonesian healthcare industry, in response to the ongoing discourse and inconsistent
empirical findings concerning the determinants of tax avoidance. The healthcare sector is
characterized by strict regulatory oversight, heightened public scrutiny, and a critical role in
ensuring public welfare, thereby placing a greater emphasis on ethical financial practices and
transparency. Despite the sector's importance, limited research has been conducted on
corporate tax avoidance behavior within this industry, particularly in the context of Indonesia.
Accordingly, the objective of this study is to examine the moderating role of firm size in the
relationship between financial performance and tax avoidance in healthcare sector companies
listed on the Indonesia Stock Exchange (IDX) during the period 2019–2023.
This research seeks to address existing gaps in the literature by providing empirical
evidence on the interaction between firm size and financial performance in shaping corporate
tax behavior. The findings are expected to offer practical insights for companies in formulating
financial strategies that are not only operationally efficient but also aligned with ethical
business conduct. Understanding these dynamics is critical, as excessive tax avoidance can
diminish public trust and reduce national tax revenues.
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2. Literature review
2.1. Agency Theory
Agency Theory is a concept in economics and management that highlights the
relationship between owners (principals) and management (agents) who act on behalf of the
owners. This theory emphasizes the differences in goals and interests between owners and
management, where management tends to act in its own personal interests rather than in the
interests of the owner which leads to conflicts where management may take the most profitable
action for the owner. The principal is the shareholder while the agent is the management who
holds the function of managing the company. The principal hires the agent to perform tasks for
the benefit of the principal (Jensen & Meckling, 1976), including the delegation of decision-
making authorization from the principal to the agent (Anthony & Govindarajan, 2011).

2.2. Tax Avoidance

Taxes are obligations imposed by the government on individuals, companies, or other
legal entities, which are mandatory and used as a source of revenue to finance various public
programs and services in the form of income tax, value added tax, and property tax.
Meanwhile, tax avoidance is a strategy that companies use to legally reduce their tax liabilities.
This is done by companies to legally reduce their tax liabilities by utilizing loopholes in tax
regulations. In contrast with tax evasion, which is an illegal act, tax avoidance is done by
utilizing existing tax policies, such as utilization of tax incentives, tax deductions from debt,
or the use of transfer pricing.
Companies do tax avoidance to optimize net income by reducing the amount of tax that
must be paid to the state. However, this practice is often debated because although it is legal,
tax avoidance can harm the government in terms of tax revenues that are used for economic
development and community welfare. used for economic development and public welfare.
According to Rahayu (2020), tax avoidance is a legal action of taxpayers in order to reduce the
cost of paying taxes that must be charged to the company in fulfilling its tax obligations. The
model for calculating tax avoidance is by using the company's Cash Effective Tax Rate
(CETR) equation.
Cash Taxed Paid
CETR =
Pre Tax Income
176 | International Journal of Academe and Industry Research, Volume 6 Issue 2

2.3. Leverage
According to Sartono (2015), leverage in financial management is the use of assets and
sources of funds by companies that have fixed costs with the intention of increasing the
potential profits of shareholders. Conversely, leverage also increases variability (risk) profits,
because if the company turns out to get profits that are lower than its fixed costs, then the use
of leverage also increases the variability (risk) of profits. If lower than its fixed costs, then the
use of leverage will reduce shareholder returns.
According to Sujarweni (2022), the solvency or leverage ratio is used to measure the
company's ability to meet all its obligations, both short and long term, and how effectively the
company uses its resources such as receivables, capital and assets. DER is a comparison
between debt and equity in corporate funding and shows the ability of the company's own
capital to meet all its obligations. This ratio can be calculated with the formula:
Total Debt
DER =
Total Equity

2.4. Profitability
The return on assets is a ratio that shows how much the contribution of assets in creating
net income (Hery, 2020). In other words, this ratio is used to measure how much net profit will
be generated from each rupiah of funds embedded in total assets. This ratio is calculated by
dividing net income by total assets.
Net Profit
ROA =
Total Assets

2.5. Growth Ratio

According to Sukamulja (2019), the development or growth of the company (growth)
is an important thing for the company to achieve, especially for long-term planning. A growing
company is able to improve its performance continuously, either by obtaining positive cash
flow or increasing profits. Revenue (sales) growth rate shows the development of company
performance in a particular year compared to the previous year. Company performance is
assumed to be reflected in the company's net sales (revenue) value.
Sales (year n) – Sales (year n − 1)
Growth Rate =
Sales (year n − 1)
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2.6. Firm Size

According to Vidyasari (2021), firm size refers to the scale or extent of an
organization's operations, commonly indicated by metrics such as total assets, total sales, and
the number of employees. A larger firm size is often associated with stronger market power,
enhanced organizational capacity, and greater access to financial resources. Consequently, firm
size is considered to significantly influence corporate decision-making processes, including
risk management, investment strategies, and financial reporting. Firm size can be measured by
the formula:
Size = Ln (Total Assets)

2.7. Hypothesis Development

The effect of leverage on tax avoidance. Leverage is used to measure the company's
ability to meet all its obligations, both short and long term and how effectively the company
uses its resources, resources such as receivables and capital and assets (Hery, 2020). This study
used DER to measure leverage. The higher the debt used by the company in financing its
operations, the higher the opportunity for companies to practice tax avoidance. Empirical
evidence showed that DER has a positive and significant effect on tax avoidance (Firmanzah
& Marsoem, 2023; Effendi & Trisnawati, 2023; Monica, 2023). Thus, it is assumed that:
H1: Leverage has a positive effect on tax avoidance.

The effect of profitability on tax avoidance. This research uses ROA to measure
profitability. ROA shows how much assets contribute to creating net income. In other words,
this ratio is used to measure how much net profit will be generated from each rupiah of funds
embedded in total assets. If the ROA ratio is high, it can cause indications of tax avoidance,
because the company will try its best to earn profits using the assets. It has to maintain its
reputation and long-term aspects and take advantage of loopholes in the law to reduce the tax
burden that must be paid by the company. The higher the profitability of a company, the greater
the tax avoidance practices carried out because companies with large income will generate
greater profits as well, because profit is one of the determinants of the basic amount of taxation,
the company will try to avoid increasing the amount of tax burden. Studies showed that showed
that ROA has a positive and significant effect on tax avoidance (Rani, 2023; Widadi, 2022;
Effendi & Trisnawati, 2022). Thus, it is assumed that:
178 | International Journal of Academe and Industry Research, Volume 6 Issue 2

H2: Profitability has a positive effect on tax avoidance

The effect of growth ratio on tax avoidance. This research uses the growth rate to
measure sales growth, which defines the company's ability to maintain its position and develop
in the economy, in general (Fahmi, 2020). The higher sales growth value of a company
indicates that the company is successful in carrying out marketing strategies and can increase
company profits. With an increased profit, the company will be obliged to pay more taxes,
leading to potential practice of tax avoidance. Research shows that profit growth has a positive
effect on tax avoidance (Khomsiyah, 2021; Stephanie & Herijawati, 2022; Ichwan & Riana,
2023). Thus, it is assumed that:
H3: Growth Ratio has a positive effect on tax avoidance

Firm size moderates the effect of leverage on tax avoidance. Firm size reflects the
overall scale and capacity of a company, particularly in terms of its financial structure, public
visibility, and access to capital. Larger firms typically require higher capital turnover and thus
tend to rely more on external financing, including debt. In accordance with Agency Theory,
the use of debt increases interest expenses, which in turn can reduce taxable income due to the
tax-deductibility of interest payments. However, excessive reliance on debt for tax planning
purposes may create agency conflicts if such strategies are not aligned with shareholders’
interests. In this context, firm size is presumed to moderate the effect of leverage on tax
avoidance. Thus, it is assumed that:
H4: Firm size moderates the effect of leverage on tax avoidance

Firm size moderates the effect of profitability on tax avoidance. Large-scale

companies generally achieve higher levels of profitability. Under Agency Theory, high
profitability may give rise to agency problems, particularly when performance-based
compensation schemes or managerial incentives are present. Managers (agents) may be
incentivized to reduce tax liabilities through aggressive tax planning, which may not always
be in the best interests of shareholders (principals). Although large firms are more capable of
utilizing available tax incentives and legal loopholes, they are also subject to greater scrutiny
from regulators and the public. Therefore, firm size is expected to influence the extent to which
profitability affects tax avoidance practices. Thus, it is assumed that:
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H5: Firm size moderates the effect of profitability on tax avoidance

Firm size moderates the effect of growth ratio on tax avoidance. Larger firms often
demonstrate more stable and consistent profit growth over time. Nevertheless, such firms are
also prone to greater agency problems due to complex organizational structures and limited
transparency. Managers may be motivated to engage in tax avoidance as a means to present
enhanced financial performance and increase perceived firm value. Despite these tendencies,
large companies also face stricter oversight, which may either constrain or amplify tax
avoidance behavior. Thus, it is assumed that:
H6: Firm size moderates the effect of growth ratio on tax avoidance

3. Methodology
This research uses quantitative methods. The population was 33 health sector
companies listed on the Indonesia Stock Exchange in 2019-2023. The sample in this study
were 16 companies. The sampling technique used purposive sampling with the following
criteria:

Table 1
Sampling criteria
Sampling Criteria Number
Companies engaged in the health sector that have gone public and are listed on the
33
Indonesia Stock Exchange for the period 2019-2023.
Companies that do not have complete financial data for the period 2019-2023 17
Number of samples that meet the criteria 16
Year of observation 5
Source: Data processed by researcher

This study used Partial Least Square- Structural Equation Modeling (PLS-SEM)
statistical software. Using PLS method, data does not have to be multivariate normally
distributed, and the sample size does not have to be large. PLS not only used to confirm the
theory, it can also be used to explain whether or not there is a relationship between latent
variables. According to Ghozali and Latan (2020), PLS is a soft modeling analysis to explain
whether there is a relationship between latent variables and confirm the theory. PLS is a
180 | International Journal of Academe and Industry Research, Volume 6 Issue 2

component or variant-based SEM equation model, which usually combines two measurement
models, namely, outer model and inner or structural model. The former is a measurement
model that makes it possible to analyze the model by showing how the manifest or observed
variables represent the latent variables being measured. The latter is a measurement model that
shows the strength of the estimation between latent variables or constructs.

Figure 1
Research conceptual framework

Agency Theory
( Explains the relationship between independent and dependent variables)

Firm Size (Z)

Leverage (X1)

Profitability (X2) Tax Avoidance (Y)

Growth Ratio
( X3 )

The effect of independent and dependent variables

The Effects of moderation on the relationship between

independent variables and dependent variables

4. Findings and Discussion

4.1. Results
Descriptive statistical analysis aims to provide an overview of the variables used in this
study, namely debt to equity ratio, return on assets, sales growth, tax avoidance and firm size.
The result shown in table 2.
Based on the results, it can be seen that the standard deviation value of DER, GR, and
Tax Avoidance (CETR) is greater than the average value, which means that the data
distribution is uneven. Meanwhile, the standard deviation value of ROA and Firm Size (SIZE)
is smaller than the average value, which means that the data has an even distribution.
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Table 2
Descriptive statistics results
Description Mean Median Minimum Maximum Std. Deviation
Debt to Equity Ratio 0.652 0.426 0.051 3.825 0.694
Return On Assets 0.098 0.092 0.002 0.31 0.072
Growth Ratio 0.132 0.074 -0.563 1.34 0.324
Tax Avoidance 0.533 0.265 0 10.897 1.259
Firm Size 23.097 25.974 14.008 30.936 6.132
Source: Data processed by researcher

Table 3
Direct effect
Original Sample (O) T Statistics P-Value
Debt to Equity Ratio → Tax Avoidance -0.021 0.151 0.880
Return On Assets → Tax Avoidance -0.296 3.185 0.002
Growth Ratio → Tax Avoidance 0.003 0.032 0.974
Source: Data processed by researcher.

The data in table 2 shows that the DER variable has a minimum value of 0.051 and a
maximum value of 3.825 with an average value of 0.652 and a standard deviation of 0.694.
The results indicate that the standard deviation value is greater than the average value, which
means that the data distribution is uneven, because the difference in data from one another is
greater than the average value. This can show that the DER has no effect on tax avoidance
(table 3). On the other hand, ROA variable has a minimum value of 0.002 and a maximum
value of 0.310 with an average value of 0.098 and a standard deviation of 0.072. The results
indicate that the standard deviation value is smaller than the average value, which means that
the data has an even distribution. Therefore, ROA has a positive effect on tax avoidance.
Meanwhile, GR has a minimum value of -0.563 and a maximum value of 1.340 with an average
value of 0.132 and a standard deviation of 0.324. The results indicate that the standard
deviation value is greater than the average value, which means that the data distribution is
uneven. This shows that GR has no effect on tax avoidance. The findings proved that ROA has
a positive effect on tax avoidance while DER and GR have no effect on tax avoidance in health
sector companies listed on the Indonesia Stock Exchange.
The total indirect effect on the variables is shown in table 4.
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Table 4
Total indirect effect
Original Sample (O) T Statistics P-Value
Debt to Equity Ratio → Firm Size → Tax
0.052 0.266 0.790
Avoidance
Return On Assets → Firm Size → Tax Avoidance -0.184 1.785 0.075
Growth Ratio → Firm Size → Tax Avoidance 0.022 0.225 0.822
Source: Data processed by researcher.

The regression coefficient value of DER moderated by firm size is 0.052, with a
positive sign, which means that if there is an increase in debt to equity ratio moderated by firm
size by 1, then tax avoidance will increase by 0.052. The significance value of the DER
moderated by firm size of 0.790 is greater than 0.05. Therefore, firm size cannot moderate the
effect of DER on tax avoidance.
The regression coefficient value of ROA moderated by firm size is -0.184, with a
negative sign, which means that if there is an increase in ROA moderated by firm size by 1,
then tax avoidance will decrease by 0.184. The significance value of ROA moderated by firm
size is 0.822 which is above 0.05. Therefore, firm size cannot moderate the effect of ROA on
tax avoidance.
The GR regression coefficient value moderated by firm size is 0.022, with a positive
sign, which means that if there is an increase in the GR moderated by firm size by 1, then tax
avoidance will increase by 0.022. The significance value of the growth ratio moderated by firm
size of 0.075 is greater than 0.05, so it can be concluded that firm size cannot moderate the
effect of growth ratio on tax avoidance.
These findings suggest that firm size does not have significant moderating role in the
relationship between the financial performance indicators (DER, ROA, GR) to tax avoidance
in health sector companies listed on the Indonesia Stock Exchange.

4.1. Discussion
This finding suggests that the level of leverage, or the extent to which a company uses
debt in its capital structure, does not significantly influence its propensity to engage in tax
avoidance strategies. Leverage, in theory, is often associated with tax planning behavior.
According to Sartono (2015), leverage refers to the use of fixed-cost financing sources, such
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as debt, with the aim of increasing potential returns for shareholders. Based on the trade-off
theory, companies may prefer debt financing due to the tax deductibility of interest expenses,
which can reduce taxable income and, consequently, tax obligations. Therefore, a higher debt
level could be expected to correspond with more aggressive tax avoidance strategies. However,
the absence of a significant relationship in this study suggests that other considerations may
outweigh the tax benefits of debt. For instance, companies with high debt levels may be more
focused on maintaining financial stability and investor confidence, especially in a highly
regulated and publicly scrutinized sector such as healthcare. Excessive leverage may be
perceived as a financial risk, potentially deterring investors and limiting access to future
capital. Additionally, companies may avoid overreliance on debt to prevent negative market
perceptions, such as declining stock prices due to rights issues or the issuance of new shares—
signals often interpreted as financial distress. Furthermore, firms in the healthcare sector might
be subject to stricter compliance requirements and more transparent financial reporting
practices, which can limit their flexibility in using debt as a tax shield. This industry-specific
context may explain why leverage does not significantly influence tax avoidance behavior in
the sampled companies. These findings are consistent with previous studies by Rani et al.
(2023), Safitri and Oktris (2023), and Apriatna and Oktris (2023), which also found that DER
has a negative but statistically insignificant effect on tax avoidance. Overall, this indicates that
while leverage theoretically offers tax advantages, practical considerations—such as risk
management, regulatory environment, and investor sentiment—play a more dominant role in
shaping corporate tax behavior in the healthcare industry.
The results also showed that ROA has a positive effect on tax avoidance in health sector
companies listed on the Indonesia Stock Exchange. Thus, it can be concluded that the higher
the value of ROA means the higher the value of net income and profitability generated by the
company. The company will try its best to take advantage of the loopholes in the law in order
to reduce the tax burden that must be paid by the company. The lower the ROA value, the
lower the CETR value, implying the company's tendency to avoid taxes increases. Companies
with little profit will not want to pay taxes because the company will maximize its profits by
avoiding taxes. Likewise, companies with high profitability and companies with increased
profits or profits tend to have conflicts of interest differences between company owners
(principals) and management (agents), because the company is considered to have run in
accordance with what is expected by the company owner. This result aligns with the findings
184 | International Journal of Academe and Industry Research, Volume 6 Issue 2

of Rani et al. (2023), Widadi et al. (2022) and Effendi and Trisnawati (2022) that ROA has a
positive and significant effect on tax avoidance.
The results also showed that GR has no effect on tax avoidance in health sector
companies listed on the Indonesia Stock Exchange. This study suggests that an increase in
profit growth does not necessarily lead firms to engage in tax avoidance. One possible
explanation is that profit growth may not directly translate into higher taxable income due to
offsetting factors such as increased operating expenses or reinvestment activities. In high-
growth companies, rising sales are often accompanied by higher production, distribution, and
administrative costs, which can diminish the impact of increased profits on taxable earnings.
Moreover, rapidly growing companies frequently reinvest their profits in research and
development, market expansion, or the acquisition of long-term assets. These reinvestments
typically result in higher depreciation and amortization expenses, which further reduce the
company's taxable base. Consequently, even with rising profits, there may be fewer incentives
or opportunities for aggressive tax planning. This implies that during phases of business
expansion, managerial attention may be more directed toward maintaining operational
scalability and competitiveness rather than minimizing tax obligations. Furthermore, in a
highly regulated industry such as the health sector, companies may prioritize regulatory
compliance and reputation management over short-term tax savings. These findings are in line
with previous studies by Cynthia et al. (2023), Sawitri et al. (2022), and Sriyono and Andesto
(2022), which also identified a negative but statistically insignificant relationship between
profit growth and tax avoidance.
The results showed that company size could not moderate the relationship between
DER and tax avoidance in health sector companies listed on the Indonesia Stock Exchange.
Thus, it can be concluded that large companies with high debt do not always do tax avoidance.
Due to the tax benefits of interest expense (interest tax shield) where debt interest can be
deducted from taxable income, the company has obtained a reduction in tax liability without
the need to implement additional tax avoidance strategies. In addition, large companies are
generally under close scrutiny from the government and tax authorities, which makes them
more cautious in their tax practices to avoid the risk of sanctions or costly audits. Reputation
is also an important consideration, as revelations of aggressive tax avoidance practices can
damage a company's image in the eyes of the public, investors and business partners. In
addition to external factors, strict internal policies and corporate governance also play a role in
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driving a more transparent and responsible tax strategy. Many large companies have boards of
directors and shareholders that demand regulatory compliance in order to maintain business
sustainability. In addition, large companies are often oriented towards long-term investments,
such as research and innovation development, business expansion, and involvement in social
projects, which are often accompanied by official tax incentives from the government.
Therefore, despite having high debt, large companies are not always encouraged to engage in
tax avoidance, because they already get tax deductions from legitimate mechanisms, consider
regulatory and reputational risks, and focus more on long-term business growth and
sustainability. This result aligns with the findings of Rani et al. (2023), Sriyono and Andesto
(2022), Cynthia et al. (2023) and Putty and Badjuri (2023) that company size is not proven to
moderate the relationship between DER and tax avoidance.
The results also showed that company size could not moderate the relationship between
ROA and tax avoidance in health sector companies listed on the Indonesia Stock Exchange.
Thus, it can be concluded that large companies with high profitability tend not to do tax
avoidance because they will focus more on compliance with regulations to maintain reputation
and credibility in the eyes of the public, government and investors. With large profits, these
companies may be more intensively monitored by tax authorities, so the risk of aggressive tax
avoidance is greater. In addition, large companies with large profits often have tax strategies
designed to legally maximize tax efficiency without breaking the rules. The need to maintain
good relations with stakeholders and avoid legal sanctions or reputational damage are the main
reasons for companies with high profitability not to engage in tax avoidance. This result aligns
with the findings of Rani et al. (2023) and Cynthia et al. (2023) that company size is not proven
to moderate the relationship between ROA and tax avoidance.
Finally, the results showed that company size could not moderate the relationship
between GR and tax avoidance in health sector companies listed on the Indonesia Stock
Exchange. Thus, it can be concluded that large companies with high sales growth do not
engage in tax avoidance for several main reasons. Although sales increase, profit before tax
may not necessarily increase significantly, because companies also experience an increase in
production, distribution, and other operational costs. Thus, high sales growth does not
necessarily mean a strong incentive for companies to avoid taxes. In addition, large companies
with rapid sales growth are usually under close scrutiny from tax authorities and regulators.
The risk of tax audits and potential legal sanctions make them more cautious in their tax
186 | International Journal of Academe and Industry Research, Volume 6 Issue 2

strategies. Large companies are also very concerned about their reputation, especially in the
eyes of investors, customers and business partners. The revelation of aggressive tax avoidance
practices can damage the company's image and reduce stakeholder trust. On the other hand,
companies with high sales growth often focus more on business expansion and long-term
investments, such as product development, increasing production capacity, and business
diversification. These investments are often accompanied by official tax incentives from the
government, so companies do not need to avoid taxes aggressively. In addition, good corporate
governance is also a factor that makes large companies tend to be more transparent and
compliant with tax regulations. Therefore, despite having high sales growth, large companies
are not always encouraged to do tax avoidance because they are more focused on business
sustainability, maintaining reputation, and utilizing legal tax incentives. This result aligns with
the findings of Sriyono and Andesto (2022), Cynthia et al. (2023) and Putty and Badjuri (2023)
that company size is not proven to moderate the relationship between GR and tax avoidance.

5. Conclusion
This study aimed to examine the moderating role of firm size in the relationship
between leverage, profitability, and profit growth on tax avoidance, focusing on health sector
companies listed on the Indonesia Stock Exchange during the period 2019–2023. The analysis
produced several key findings: profitability has an effect on tax avoidance; leverage and
earnings growth has no effect on tax avoidance; and firm size is unable to moderate the effect
of profitability, leverage and earnings growth on tax avoidance. These findings suggest that
tax avoidance is more directly influenced by internal financial performance than by company
size or capital structure. Although tax avoidance is legally permissible, it may raise ethical and
reputational concerns due to its reliance on exploiting regulatory loopholes.
Theoretical implications include the reinforcement of agency theory and political cost
theory, where financial performance drives managerial behavior in tax planning. Practically,
the study encourages companies to prioritize ethical financial decisions and long-term
sustainability over short-term tax benefits. Additionally, policymakers are urged to strengthen
tax regulations and oversight mechanisms to limit opportunities for tax avoidance.
Limitations of this study include its focus on one sector and a specific time frame using
purposive sampling, which restricts the generalizability of the results. For future research, it is
recommended to explore similar models across different industries and time periods, and to
 ISSN 2719-0617 (Print) 2719-0625 (Online) | 187

incorporate additional moderating variables such as corporate governance or audit quality for
deeper insights. For companies, managerial practices should emphasize ethical financial
decision-making and prioritize long-term sustainability over short-term tax advantages. For
governments, these results highlight the importance of enhancing regulatory oversight and
strengthening tax policies to close existing loopholes and reduce the likelihood of tax
avoidance practices.

Disclosure statement
No potential conflict of interest was reported by the author(s).

Funding
This work was not supported by any funding.

AI Declaration
The author declares the use of Artificial Intelligence (AI) in writing this paper. In particular,
the author used ChatGPT and Quillbot in paraphrasing and grammatical proficiency. The
author takes full responsibility in ensuring proper review and editing of contents generated
using AI.

ORCID
Felicia Auryn - https://orcid.org/0009-0009-3004-2272
Galumbang Hutagalung – https://orcid.org/0000-0002-8375-5366
Enda Noviyanti Simorangkir – https://orcid.org/0000-0003-2524-3722
Sauh Hwee Teng - https://orcid.org/0000-0003-3688-519X
188 | International Journal of Academe and Industry Research, Volume 6 Issue 2

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