The Effect of Corporate Tax Avoidance on the Cost of Equity.

• Autores: Beng Wee Goh, Jimmy Lee, Chee Yeow Lim, Terry Shevlin
• Localización: Accounting review: A quarterly journal of the American Accounting Association, ISSN 0001-4826, Vol. 91, Nº 6, 2016, págs. 1647-1670
• Idioma: inglés
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• Dialnet Métricas: 1 Cita
• Resumen

  • Based on Lambert, Leuz, and Verrecchia's (2007) derivation of the cost of equity capital in terms of expected cash flows, we generate a testable hypothesis that relates tax avoidance to a firm's cost of equity capital. Using three broad measures of tax avoidance--book-tax differences, permanent book-tax differences, and long-run cash effective tax rates--to test our hypothesis, we find that the cost of equity is lower for tax-avoiding firms. This effect is stronger for firms with better outside monitoring, firms that likely realize higher marginal benefits from tax savings, and firms with higher information quality. Overall, our results suggest that equity investors generally require a lower expected rate of return due to the positive cash flow effects of corporate tax avoidance. [ABSTRACT FROM AUTHOR]