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This study investigates whether the external corporate governance mechanism plays an effective monitoring system for multinational companies' tax avoidance and profit-shifting activities. This study uses 553 firm-year observations from 135 listed firms in the manufacturing and agriculture sectors of the Indonesian capital market from 2015-2019. The results suggest that firms with potential tax avoidance activities experience a more severe decline in firm value, specifically firms with strong market-based governance. The findings on firms with tax haven subsidiaries suggest that market-based governance effectively prevents firms from gaining benefits through tax havens and encourages sustainable tax behaviour. This study provides novel empirical evidence that market-based governance is the encouraging factor in achieving sustainable tax behaviour. The findings have significant implications for regulators and practitioners, showing that the regulations related to the advanced transparency and mandatory disclosure of foreign subsidiaries along with the external monitoring mechanism, have effectively encouraged sustainable behaviour.

This study investigates whether organisational capital and tax haven utilisation through subsidiaries are associated with firm value. We use 705 observations of Indonesian-listed firms from the agriculture and manufacturing sectors as the main contributors to the gross domestic product (GDP). The sample has been analysed using the weighted least square (WLS) panel regression technique over the period 2015-2019. The findings suggest that the positive association between organisational capital and firm value is stronger when tax haven subsidiaries are utilised. High organisational capital (OC) firms are often linked to limited access to financing since intangible assets are difficult to use as collateral. Tax haven subsidiaries can serve as a risky tradeoff for OC firms. Our study provides novel empirical evidence supporting social tax justice and stakeholder theory and encourages the cooperation of all stakeholders to resolve the recognition and assessment of intangible capital in financial reports.