MODERATING ROLE OF AUDIT QUALITY AND FIRM SIZE ON PRETAX PROFIT MARGIN AND RELATED PARTY TRANSACTIONS: EVIDENCE FROM INDONESIA

This study examines the effect of related party transactions (RPTs) on pretax profit margin (PPM). It analyzes moderating audit quality and firm size based a large panel Indonesian-listed firms. The sample three representative business groups from 2010–2021 analysis uses Generalized Method Moments (GMM) estimator to control PPM as proxy taxable income. We document that this finds PPM(t-1) RPT Sales negatively impact are significant firms’ PPM, consistent with incentive alignment hypothesis. However, RPTs, Loan, Receivables affect positively. also find strengthens Loan positively significantly; however weakens Sales, Expenses. Moreover, RPTs PPM. tax avoidance complex multifaceted phenomena corporate finance. Additional variables may have mediating effects income group. Stakeholders, especially government, should supervise activities comprehensively, types Expenses transactions. paper offers two contributions. First, it gathers first evidence practices insights into Indonesia’s group behavior. Second, eleven years considering sensitivity margin.