Aryo Bimo Setya Permana

VALUE RELEVANCE OF TAX EXPENSE IN INDONESIA’S LQ45 COMPANIES

Introduction

Value relevance of tax expense in indonesia’s lq45 companies. Examine income tax value relevance for Indonesia's LQ45 companies (2020-2024). Tax expense, book value, and EPS significantly impact stock price, fostering investor confidence.

Abstract

This study examines the value relevance of income tax information in the Indonesian capital market using firms listed in the LQ45 index from 2020 to 2024. Adopting the Feltham and Ohlson (1995) price valuation model, it includes book value, earnings per share (EPS), and tax expense as predictors of stock price. Ordinary Least Squares (OLS) regression results show all three variables significantly and positively affect stock price, with tax acting as an indicator of profitability. The findings underscore the strategic importance of transparent tax reporting in enhancing investor confidence, reducing information asymmetry, and improving the usefulness of financial statements.

Review

This study investigates the value relevance of income tax expense within the Indonesian capital market, focusing on LQ45 index firms from 2020 to 2024. Utilizing the established Feltham and Ohlson (1995) model, the authors examine the influence of book value, earnings per share (EPS), and tax expense on stock prices. The abstract reports that Ordinary Least Squares (OLS) regression analysis reveals a significant and positive relationship for all three variables, suggesting their importance to investors. The findings are positioned to highlight the strategic significance of transparent tax reporting in fostering investor confidence, mitigating information asymmetry, and enhancing the overall utility of financial statements. While the study addresses a relevant topic in an important emerging market context, certain aspects of the abstract warrant further clarification. The stated data period of "2020 to 2024" immediately raises a significant methodological question, as 2024 data would largely be unavailable or prospective at the time of most analyses, requiring a precise explanation of how this period was constructed or if it implies data *up to* the end of 2023. Additionally, the assertion that "tax acting as an indicator of profitability" alongside the inclusion of EPS as a separate predictor begs for deeper theoretical justification. The paper should clearly articulate the incremental information content provided by tax expense beyond what is already captured by earnings, especially to avoid concerns about multicollinearity and to delineate the specific mechanisms through which investors utilize this information. Overall, the study presents an intriguing initial contribution to the literature on value relevance in Indonesia. Should the full paper adequately address the methodological clarity regarding the data period and provide a more robust theoretical framework for the distinct value relevance of tax expense separate from earnings, it has the potential to offer valuable insights. Further discussion on the specific implications for "transparent tax reporting" and how the identified value relevance directly supports these claims, perhaps through a more nuanced examination of reporting quality or investor reactions, would also strengthen its contribution.

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