International Journal of Economics and Financial Issues ISSN: 2146-4138 available at http: www.econjournals.com International Journal of Economics and Financial Issues, 2015, 5(Special Issue) 315-323. 2nd AFAP INTERNATIONAL CONFERENCE ON ENTREPRENEURSHIP AND BUSINESS MANAGEMENT (AICEBM 2015), 10-11 January 2015, Universiti Teknologi Malaysia, Kuala Lumpur, Malaysia. The Effect of the Tax Planning to Firm Value with Moderating Board Diversity Nanik Lestari1*, Ratna Wardhani2 Department of Business Management - Accounting, Batam State Polytechnic, Parkway Street Batam Center, Batam, Indonesia, Department of Accounting, Faculty of Economics and Business, University of Indonesia, Kampus Widjojo Nitisastro, Depok, Indonesia. *Email: nanik@polibatam.ac.id 1 2 ABSTRACT The purpose of this research is to analyze the impact activities tax planning (TP) to firm value with board diversity as moderating variable. The research was conducted for non-banking and financial firms in Indonesia stock exchange for 2010-2011. The results of this study are: Firstly, we found evidence of positive relationship between TP and firm value. Secondly, we found evidence that board diversity (AGE and BSTUDY of member director) could increase the positive influence of TP into firm value, except for MINORITY could decrease the positive influence of TP into firm value. Finally, the results of the sensitivity test with the full model and the full sample suggested that TP had robust positive effect in increasing firm value, then the moderating influence of board diversity (BSTUDY and MINORITY) on the relationship between TP and firm value was consistent but other variables of board diversity (AGE) are not consistent. Keywords: Tax Planning, Firm Value, Board Diversity JEL Classifications: E21 1. INTRODUCTION This study is committed to investigate the relationship between tax planning (TP) and firm value with board diversity as moderating variable on Indonesia companies' context. Wahab and Holland (2012) examines relationship between shareholders valuation of corporate income and TP with corporate governance (CG) as moderating variable in U.K contexts. The authors documents are: First, they found evidence of negative significant relationship between the level of TP and firm value which is robust to controlling for CG. Second, they used the two moderating variables CG were institutional ownership (IOWN) and nonexecutive ownership (NED) to examine whether the relationship between firm value and TP. They found no significantly CG as moderating the relationship between firm value and TP. Ernest and Young (2009) stated that a group with heterogenity (diversity) is more likely to have better performance rather than a group with the homogeneous, although those more profecient in its. In line these studies, that the group is diverse when managed properly will result more likely innovative business decisions rather than homogeneous groups (Catalyst, 2005). Another stream of research indicates that board diversity from mechanism CG. Empirical evidence that many researchers have examined boards diversity to firms value or firms performance such (Carter et al., 2003; Darmadi, 2010; Kusumastuti et al., 2007) and TP (Aliani and Zarai, 2012a). Carter et al., (2003) that examined the relationship board diversity between firm values for fortune 1000 firms in context of US. They found significant positive relationship between the fraction of women and minorities on the board (as proxy from board diversity) and firm value, thus result consistency with Darmadi (2010); Kusumastuti et al., (2007) in context of Indonesia firms. The empirical studies about board diversity in the context of TP first time were done Aliani and Zarai (2012a). Aliani and Zarai (2012a) examined the effect of demographic gender diversity International Journal of Economics and Financial Issues | Vol 5 Special Issue 2015 315 Lestari and Wardhani: The Effect of the Tax Planning to Firm Value with Moderating Board Diversity on corporate TP in American firms of context. They found that gender diversity on the board was not significant and did not affect the TP in context of American firms. In the contrast in Tunisia firms context, the authors documented diversity on the board of directors significantly positive influence TP (Aliani and Zarai, 2012b). Based on the previous studies Wahab and Holland (2012); Aliani and Zarai (2012a, 2012b); Carter et al., (2003); Darmadi (2010); Kusumastuti et al., (2007) have not been reseacrhed yet past study used board diversity as moderating variable on the relationship between TP and firm value. Thus, the current study aims to fill gap research by focusing on board diversity from CG mechanism as moderating on the relationship between TP and firm value in Indonesia firm of context. We used three characterstic of the board directors members as measured board diversity are age, minority (ethnics Chinese/Tionghoa), background education/study (BSTUDY). We also use method applied by Wahab and Holland (2012) for measurements firm value and TP variables. This study has fourth contributes. Firstly, the extant literature that behaviors TP related to firm value on Indonesia based. Secondly, for CG mechanism literature by shown the potential moderating impact of the board diversity in the association between TP to firm value, which strategic tax decision related to minimum tax burdens. Thirdly, for our knowledge, we investigate relationship between TP and firm value with board diversity as moderating variable, which have not been researched yet in the past study. Prior researches Aliani and Zarai (2012a; 2012b); Carter et al., (2003); Kusumastuti et al., (2007); Darmadi (2010) only examined direct relationship between board diversity with firm performance or TP. Board diversity is interesting which characteristic people with multi ethnic, religious, culture. Finally, we alternative measurement board diversity with new perspectives, which board diversity are measured from board director Board of Management (BOM), while Indonesia is company law adopts two tiers board structures. According to law, corporate shall have two boards in their organizational structures, namely \"dewan komisaris\" Board of Commissioners (BOC) and \"dewan direksi\" BOM. Members of BOC and BOM are elected by shareholders in the shareholders general meeting (Darmadi, 2010). The earlier studies diversity view point from characteristic BOC as proxy board diversity such Darmadi (2010); Kusumastuti et al. (2007). This current study is measured board diversity from BOM caused TP related operational activities decision making strategies of BOM which to minimum tax burdens. Our study used panel balance data of 442 firms listed on the Indonesia stock exchange (IDX) from 2010 to 2011. The statistical results provided from this study are: Firstly, we found evidence of positive relationship between TP and firm value. Secondly, we found evidence that board diversity (AGE and BSTUDY of member director) could increase the positive influence of TP into firm value, but for MINORITY could decrease the positive influence of TP into firm value. Finally, the results of the sensitivity test with the full model and the full sample suggested that TP had robust positive effect in increasing firm value, then the moderating influence of board diversity (BSTUDY and MINORITY) on the relationship between TP and firm value was consistent but other variables of board diversity (AGE) are not consistent. 316 The remainder of the paper consists of the following six sections. Section two provides previous research and hypotheses development. Section three describes our research model and research sample and other data used in our analysis. A description of the research results is presented in the fourth section. The fifth section provides the sensitivity analysis. Conclusions and suggestions from the research are set out in section six. 2. LITERATURE REVIEW 2.1. Association between TP and Firm Value The previous research of TP has been viewed two perspective differences. Firstly, the traditional theory perspective view of the TP (or tax avoidance) is seen as leading to increase after tax earnings and therefore to be in the interest of shareholders, this is typically taken in valuation model/firm value (Desai and Dharmapala, 2009; Wahab and Holland, 2012; Desai and Dharmapala, 2006). TP activities that reduce transfer resources from shareholders to government should generally enhance shareholders wealth/firm value. Secondly, the agency theory perspective views of the TP suggest that TP can be complex and opaque and can possibly allow for managerial opportunism. TP can lead to a reduction in firm value when managers have both the opportunity to understate reported accounting profit and the incentive to reduce corporate income tax liability by understating taxable income or less transparency (Desai and Dharmapala, 2009; Wahab and Holland, 2012; Minnick and Noga, 2010; Desai and Dharmapala, 2006). The role of CG mechanism in TP thus can become important. Wahab and Holland (2012) conducted research relationship between shareholders valuation of corporate income and TP with CG as moderating variable in UK contexts. The authors used the difference between a firm's current tax provision as disclosed in its annual financial statements and the (national) level of tax that would be payable if its profit before tax was subject to tax at the UK statutory rate to measure TP. The authors used two moderating variable CG mechanisms are Institutional ownership (IOWN) and non-executive ownership (NED) to examine whether affect the moderating variable CG of the relationship between TP and firm value. The authors have two empirical results: First, they found evidence of negative significant relationship between the level of TP and firm value which is robust to controlling for CG. Second, the author found no significantly CG as moderating the relationship between firm value and TP. This result supported by Desai and Dharmapala (2009) in contexts US firms. Desai and Dharmapala (2009) used institutional ownership as measured CG. Desai and Dharmapala (2009), investigating the relationship between tax avoidance activities and firms value using a sample 862 US firms. In the research, tax avoidance is measured by book-tax gap while Tobin's Q is the proxy for the firm value. The authors used institutional ownership as measured CG. The authors found no direct significant relationship between tax avoidance activities and firm value. Further analysis the authors are split for the measuring of CG which is based on fraction of a company's share owned by institutional investors in which ratios of more than 60% are indicate of stronger governance institutions \"high\" and