The purpose of this research is to determine the impact of the firm size and profitability on the level of tax aggressiveness using the mediation of earnings management in the banking sector in Indonesia. The research is prompted by concerns about the rising levels of aggressive tax practices and the significance of financial governance for transparency and sustainable economic development. Using agency theory and legitimacy theory as theoretical frameworks, this study analyzes the effects of firm characteristics on tax behavior through managerial discretion in financial reporting. Quantitative research design was used with secondary data obtained from the banking firms listed on Indonesia Stock Exchange (IDX) from 2019 to 2023. The final sample was 169 firm-year observations which were analyzed using PLS-SEM. As a result, it can be concluded that profitability positively impacts both earnings management and tax aggressiveness. In turn, earnings management significantly affects tax aggressiveness and serves as a mediator between firm characteristics and tax behavior. Firm size, in turn, does not affect the level of tax aggressiveness, but it significantly impacts it indirectly through earnings management. The findings of the study help to add to the literature in the areas of tax aggressiveness, earnings management, and corporate governance. The findings of the study also have some practical implications for the regulation and policymaking authorities and financial institutions for developing robust governance systems and avoiding tax aggressiveness strategies.

Keywords:
Firm Size
Profitability
Tax Aggressiveness
Earning Management
Governance

*Corresponding Author.
E-mail address: putriprawitasari@undiknas.com