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The effect of tax avoidance on cost of debt capital: Evidence from Korea

Title
The effect of tax avoidance on cost of debt capital: Evidence from Korea
Authors
Shin, H-J.Woo, Y-S.
Ewha Authors
우용상
SCOPUS Author ID
우용상scopus
Issue Date
2017
Journal Title
SOUTH AFRICAN JOURNAL OF BUSINESS MANAGEMENT
ISSN
2078-5585JCR Link2078-5976JCR Link
Citation
vol. 48, no. 4, pp. 83 - 89
Publisher
ASSOC PROFESSIONAL MANAGERS SOUTH AFRICIA
Indexed
SSCI WOS
Abstract
This study investigates the relation between tax avoidance and the cost of debt capital and analyzes the effect of the debt ratio and profitability on the relation between tax avoidance and the cost of debt. The results of our empirical analysis are as follows. First, tax avoidance is significantly positively associated with the cost of debt capital. This result shows that tax avoidance is considered as the signal of increasing information risk; thus, investors demand a higher return. Second, the debt ratio decreases the positive relation between tax avoidance and the cost of debt capital. This result indicates that the positive relation between tax avoidance and the cost of debt capital significantly decreases when the debt ratio is high. Finally, we fmd that the profitability of a company increases the positive relation between tax avoidance and the cost of debt capital. This result means that the cost of debt capital increases as the tax avoidance increase when the profitability of company is favorable. We fmd that the profitability of a company is one of the critical factors that have an effect on the relation between tax avoidance and the cost of debt capital.
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경영대학 > 경영학전공 > Journal papers
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