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The Effect Of Corporate Tax Avoidance On The Cost Of Equity
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Book Synopsis The Effect of Corporate Tax Avoidance on the Cost of Equity by : Beng Wee Goh
Download or read book The Effect of Corporate Tax Avoidance on the Cost of Equity written by Beng Wee Goh and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Based on Lambert, Leuz, and Verrecchia (2007)'s 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.
Book Synopsis Possible Implications of Integrating the Corporate and Individual Income Taxes in the United States by : International Monetary Fund
Download or read book Possible Implications of Integrating the Corporate and Individual Income Taxes in the United States written by International Monetary Fund and published by International Monetary Fund. This book was released on 1990-07-01 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: The classical corporate profits tax in the United States involves non-neutralities between: different sources of financing; different forms of business organization; and retaining or distributing earnings and may result in the U.S. investor being at a disadvantage vis-à-vis foreign investors. An international comparison is provided, and the potential effects of different integration schemes on the user cost of capital and tax revenues are assessed. The integration of corporate and individual income taxes in the United States could lead to a more efficient domestic and worldwide allocation of resources.
Book Synopsis Equity, Efficiency, and the U.S. Corporation Income Tax by : J. Gregory Ballentine
Download or read book Equity, Efficiency, and the U.S. Corporation Income Tax written by J. Gregory Ballentine and published by A E I Press. This book was released on 1980 with total page 128 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Tax and the Cost of Equity Capital by : Dan S. Dhaliwal
Download or read book Tax and the Cost of Equity Capital written by Dan S. Dhaliwal and published by . This book was released on 2014 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the association between taxes and the cost of equity capital in an international setting that allows for exogenous, cross-sectional variation in corporate and investor tax rates. Using a sample of firms from 33 countries over a 21-year period, we find that the cost of equity capital increases in leverage. This effect decreases in the corporate tax rate as well as the personal tax penalty on interest income relative to equity income, though the significance of this latter result is sensitive to model specification. Further, we find that the cost of equity capital increases in tax penalized dividend income and that cross-border equity investments affect the relation between taxes and the cost of equity capital. In sum, we offer further and confirming evidence, in an international setting, that taxes impact the cost of equity capital.
Book Synopsis Tax Avoidance and Capital Structure by : Alessandro Gabrielli
Download or read book Tax Avoidance and Capital Structure written by Alessandro Gabrielli and published by Springer Nature. This book was released on 2023-05-23 with total page 103 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides a comprehensive overview of the implications of tax avoidance for a firm’s capital structure, highlighting the key role played by free cash flow and agency conflicts. First, the book provides an outline of the theories and empirical evidence concerning the role of taxes in the Theory of Capital Structure. It reviews the studies investigating the relationship between agency conflicts and capital structure. The book explores the role of free cash flow and agency conflicts in the relationship between tax avoidance and capital structure. In the final section, the results of an empirical investigation conducted on a sample of U.S. public firms are also presented. The empirical research examines whether and how tax avoidance is associated with debt covenant violation across the stages of the corporate life cycle. Specifically, the research uses the concept of the corporate life cycle stage to analyse whether and how the association between tax avoidance and debt covenant violation varies in different agency settings. Consistent with the hypotheses drawn on the Agency Theory, the findings of the empirical research suggest life cycle stages moderate the association between tax avoidance and debt covenant violation. Overall, this book sheds light on the potential implications of tax avoidance activities for a firm’s capital structure. The book will be of interest to both experienced and early-stage scholars interested in the topic. Moreover, the book will also be of interest to policymakers, investors, analysts, lenders, and other market participants.
Book Synopsis The Effect of Taxes and Leverage Related Costs on Corporate Capital Structure by : F. M. McDougall
Download or read book The Effect of Taxes and Leverage Related Costs on Corporate Capital Structure written by F. M. McDougall and published by . This book was released on 1981 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author :Roger Hall Gordon Publisher :Cambridge, Mass. : National Bureau of Economic Research ISBN 13 : Total Pages :64 pages Book Rating :4.:/5 (318 download)
Book Synopsis Taxes and the Form of Ownership of Foreign Corporate Equity by : Roger Hall Gordon
Download or read book Taxes and the Form of Ownership of Foreign Corporate Equity written by Roger Hall Gordon and published by Cambridge, Mass. : National Bureau of Economic Research. This book was released on 1992 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: Investors can achieve international diversification in their portfolios not only through purchasing foreign equity directly but also through investing in domestic firms which then invest abroad. Yet these alternative approaches are taxed very differently. A number of countries have also imposed various forms of capital controls restricting direct purchases of foreign equity. This paper estimates the degree to which these tax and nontax factors have affected the relative use of these two alternative methods of international diversification, using data on investment in the U.S. by investors from each of ten other countries during the period 1980-1989. While the composition of equity flows differs dramatically across countries, taxes do not appear to play an important role in the data in explaining this variation. Part of the explanation appears to be that tax distortions adjust endogenously to avoid large scale portfolio investments abroad. With the increasing integration of capital markets and the easing of capital controls in many countries, we have seen and expect to continue to see reductions in the tax distortions affecting the form of international capital flows.
Book Synopsis Capital Market Effects of Taxes and Corporate Tax Avoidance by : Alexander Tassius
Download or read book Capital Market Effects of Taxes and Corporate Tax Avoidance written by Alexander Tassius and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Indirect Costs of Corporate Tax Avoidance Exacerbate Cross-country Inequality by : Javier Garcia-Bernardo
Download or read book The Indirect Costs of Corporate Tax Avoidance Exacerbate Cross-country Inequality written by Javier Garcia-Bernardo and published by . This book was released on 2022 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Corporate tax avoidance hampers domestic revenue mobilization and, with it, the development of lower- and middle-income countries. While a wide range of studies has shed light on the magnitude of profit shifting by multinational corporations, the indirect costs of this behaviour is underexplored. These indirect costs are likely to be skewed based on a country's level of income. We hypothesize that developed countries tend to recover a larger part of corporate tax revenue losses (primary effects or direct costs) via capital gains and dividend taxes on corporate investors (secondary effects). Furthermore, developed countries can offset tax losses by borrowing in financial markets at very low interest rates (tertiary effect or, together with secondary effects, indirect costs). In this paper, we introduce a dynamical model that includes not only corporate tax revenue losses but also tax revenue collected from capital gains and dividend taxes, as well as government borrowing costs. We use country-by-country reporting data on the operations of multinational corporations to estimate profit shifting, alternative operationalizations of the location of investors to proxy the tax revenues from capital gains and dividend taxes, and yields on government bonds to measure the cost of borrowing. Our results show that when these indirect costs are included, the total cost of profit shifting for developing countries increases significantly, while some developed countries can often offset or recover the majority of the direct costs of profit shifting. The ability of the latter to do this is, however, uneven with, for example, most European countries losing revenues from profit shifting even after indirect effects are taken into account. Only a handful of other countries actually appear to profit from profit shifting-and by an amount that is far smaller, in relation to gross domestic product, than the losses suffered by others.
Book Synopsis New Developments in Corporate Finance and Tax Avoidance by : John B. Shoven
Download or read book New Developments in Corporate Finance and Tax Avoidance written by John B. Shoven and published by . This book was released on 1986 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: The financial behavior of corporations has changed greatly in the last ten years. Previously most of the cash that stockholders received from corporations took the form of dividends, and economists' models that have dividends as the ultimate determinant of equity values were not far off the mark. This paper documents how much things have changed. There are strong tax incentives for nondividend cash payments between corporations and shareholders. These payments can take the form of a repurchase by the company of its own shares, or the acquisition of the shares in another company. There has been tremendous growth in the magnitude of nondividend cash payments. In the early 1970s these payments amounted to roughly 15 percent of dividends. By 1984, they exceeded dividends, and in 1985 the amounted to $120 billion, or almost 50 percent more than total dividends in the economy. The paper shows that dividends per unit equity have not fallen. Rather, the acquisition of equity has allowed firms to retain relatively constant debt equity ratios in the past five years despite strong equity markets. Firms have chosen to absorb equity and issue debt, roughly holding leverage constant, and have thus saved large amounts of taxes. The paper estimates that the cost to the Treasury of treating share purchase payments differently than dividends was more than $25 billion in 1985. It also finds that future corporate tax collections are significantly reduced by the resulting decline in corporate equity. The paper suggests that the existing model of dividend driven equity valuation must be discarded. It simply is not consistent with the facts. Further research on the form of payments between firms and their shareholders is clearly merited
Book Synopsis Taxes, Leverage, and the Cost of Equity Capital by : Dan S. Dhaliwal
Download or read book Taxes, Leverage, and the Cost of Equity Capital written by Dan S. Dhaliwal and published by . This book was released on 2006 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the associations between leverage, corporate and investor level taxes, and the firm's implied cost of equity capital. Expanding on Modigliani and Miller [1958,1963], the cost of equity capital can be expressed as a function of leverage and corporate and investor level taxes. This expression predicts that the cost of equity is increasing in leverage, but that corporate taxes mitigate this leverage related risk premium, while the personal tax disadvantage of debt increases this premium. We empirically test these predictions using implied cost of equity estimates and proxies for the firm's corporate tax rate and the personal tax disadvantage of debt. Our results suggest that the equity risk premium associated with leverage is decreasing in the corporate tax benefit from debt. We find some evidence that the equity risk premium associated with leverage is increasing in the personal tax penalty associated with debt.
Book Synopsis Cost-of-Equity-Irrelevance Regarding Corporate Tax by : Yuan-Chi Liu
Download or read book Cost-of-Equity-Irrelevance Regarding Corporate Tax written by Yuan-Chi Liu and published by . This book was released on 2008 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: In finance, it is taken for granted that cost of equity is a function of tax. This common sense misleads both MM (1963) and Hamada (1969) to propose the models of cost of equity after tax for MM (1958) and CAPM, respectively. This paper proves that cost of equity is irrelevant to tax. Otherwise, Double-Tax-Adjustment (DTA) will result. Payment to Equity After Tax is generally defined as (cost-of-equity)*(equity-value)*(1 - tax rate). In Proposition II, we prove generalized equity value after tax S = generalized equity value before tax Sg*(1 - tax rate). When equity value after tax covers tax-adjustment (1 - tax rate), there is no room for cost of equity to include any further tax-adjustment lest DTA results. Unfortunately, MM (1963) and Hamada (1969) are in the same boat in the use of the misleading symbol S for equity values before and after tax in their models of cost of equity and introduce a dummy cost of equity after tax by concluding that cost of equity is a function of tax for MM and CAPM, respectively. After revising MM (1963) and Hamada (1969), we have Cost of Equity Irrelevance regarding Tax (CEIT).
Book Synopsis Taxation and the Cost of Capital by : Hans-Werner Sinn
Download or read book Taxation and the Cost of Capital written by Hans-Werner Sinn and published by . This book was released on 1990 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper is a critical survey of the recent literature on the tax effects on corporate finance and investment decisions. It corrects a common misinterpretation of the "new" view, emphasizes the cushion effect of financial optimization, dismisses the view that optimizing firms behave as if they maximized their cost of finance, studies the role of immature firms, questions the alleged support of the old view by the occurrence of share repurchases, comments on a potential US budget compromise, and suggests the idea of a Political Miller Equilibrium.
Book Synopsis Corporate Tax Avoidance and Debt Costs by : Terry J. Shevlin
Download or read book Corporate Tax Avoidance and Debt Costs written by Terry J. Shevlin and published by . This book was released on 2019 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use path analysis to investigate how corporate tax avoidance is priced in bond yields and bank loan spreads. We find that approximately one half of the total effect of tax avoidance on bond yields is explained through the negative effect of tax avoidance on future pre-tax cash flow levels and volatility and, to a lesser extent, lower information quality. The effects of these mediating variables are much less pronounced for bank loan spreads. The results of additional cross-sectional analyses indicate that, relative to bond investors, banks are able to reduce information asymmetry problems more effectively, given their access to firms' private information and greater ability to monitor borrowers.
Book Synopsis Short Selling and Corporate Tax Avoidance by : Jinbo Luo
Download or read book Short Selling and Corporate Tax Avoidance written by Jinbo Luo and published by . This book was released on 2019 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the effect of short selling on corporate tax avoidance. We propose a financial constraint view, that short selling triggers corporate insiders' incentive to avoid taxes for funding investment opportunities in emerging markets. Employing staggered short-sale deregulation on the Chinese stock market as quasi-exogenous shocks, we find that the deregulation of short-sales reduces firms' cash effective tax rates and effective tax rates by 11.8% and 21.1%, respectively. This effect is especially prominent for financially constrained firms and non-state-owned firms. We further show that short-sale deregulation indeed increases the cost of equity capital of Chinese listed firms. These results suggest that tax avoidance helps to generate additional funds and mitigates financial constraints under downward price pressure in emerging markets that have strong government intervention and lax law enforcement.
Book Synopsis The Effect of Earnings Quality and Internal Resource on the Relationship Between Tax Avoidance and Firm Level Investment by : Cesilia Mgimwa
Download or read book The Effect of Earnings Quality and Internal Resource on the Relationship Between Tax Avoidance and Firm Level Investment written by Cesilia Mgimwa and published by . This book was released on 2020-03-23 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: Master's Thesis from the year 2019 in the subject Business economics - Investment and Finance, language: English, abstract: The perception that corporate tax avoidance represents a shift of value from the government tax authority to shareholders has been questioned by recent studies that finds this perception to not be legitimate in the data. In this study, I point out the evidence of the positive relationship between tax avoidance and firm level investment so that to provide an evidence of the managers' behavior of using savings from tax avoidance to fund firms' investment activities. Furthermore, this study, examine the effect of earnings quality and internal resource on the relationship between tax avoidance and firm level investment. I collected data of 3085 firms from the KisValue database with accounting data for companies listed on the Korea Stock Exchange (KOSPI) from 2012 to 2017, to test the effect of earnings quality and internal resource on the relationship between tax avoidance and firm level investment. I start with year 2012 because in 2012, International Financial Reporting Standards (IFRS) adoption becomes compulsory to all listed companies in Korea. In contrast from previous research, this study looks at the relationship of tax avoidance and firm level investment from a different perspective by focusing on the effect of earnings quality and internal resource on this relationship. The evidence of this study suggests that tax avoidance is positively associated with firm level investment. In other words, when firms increase tax avoidance, the firm level investment also increases. Adding to Dobbins and Jacob (2016) and Axel and Joachim (2017) research that found lowered tax rates, induce higher investments. This study also finds the evidence that the relationship between tax avoidance and firm level investment depends on the availability of internal resource and the level of earnings quality. The relationship between tax avoidance and firm level
Book Synopsis The Effect of Securities Regulation and Corporate Tax by : Magdi Shaker
Download or read book The Effect of Securities Regulation and Corporate Tax written by Magdi Shaker and published by LAP Lambert Academic Publishing. This book was released on 2011-06-01 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book examines international differences in firms' Cost of Capital across 40 countries. I analyze whether the effectiveness of a country's Securities regulation, Investors protection, corporate Tax rate and the effective corporate Tax rate are systematically related to cross-country differences in the Cost of Capital. I estimate the firms' implied Cost of Capital for the year 2005 using the Target Price model implemented by Botosan and Plumlee (2005), and the Price Earnings Growth model (PEG-model) implemented by Easton(2005). My results support the research hypothesis and the conclusion that firms from countries with, stronger securities regulation, stronger investors' protection, higher corporate tax rate and higher effective tax rate have a significantly lower cost of capital. However, the security regulation variable was not significantly, but negatively related to the Cost of Capital when I included the control variables of firms' Size and the book-to-market value ratio into the estimation model. This book is value relevant for several investors, stakeholders and firms with common share issue and management making decisions.
