Tax Risk and the Cost of Equity Capital

Hutchens, Michelle; Rego, Sonja O.

doi:10.2139/ssrn.2186564

Cited by 55 publications

(89 citation statements)

References 38 publications

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“…This positive influence meant the greater the tax avoidance done by the company, the cost of equity to be borne by investors would also increase. The results of this study were consistent with the results of the study conducted by Hutchens & Rego (2015) also revealed in their research that corporate risk (tax avoidance proxy) positively affected on the cost of equity. This was reinforced by Cook et al(2017) that for companies with high level of tax avoidance, an increase in tax avoidance would raise the cost of equity.…”

Section: Resultssupporting

confidence: 91%

“…Further research can use the model of implied cost of equity of Kim & Sohn(2013), Avg_Premium (Cook et al, 2015), AVG_RATE (Hutchens & Rego, 2015), and R_PEG (Goh et al, 2016) to measure the cost of equity. Measurement of tax avoidance in this study using the model of Tang & Firth (2011).…”

Section: Discussionmentioning

confidence: 99%

“…The level of future cash flow (expected future cash flow) will affect the cost of equity (Lambert et al, 2007). On the other hand, tax avoidance can increase the cost of equity (Hutchens & Rego, 2015). Investors consider tax avoidance as a risky management action that increases uncertainty over their investment which means increasing the cost of equity.…”

Section: Introductionmentioning

confidence: 99%

“…Future cash flows are an indicator of return on investment in the form of dividends so that uncertainty of future cash flows will increase the uncertainty of investment returns or increase the cost of equity. This is reinforced by (Cook et al, 2017;and Hutchens & Rego, 2015) tax avoidance will increase the cost of equity. In agency theory, there is asymmetry information between management and investors.…”

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

The Effects of Tax Avoidance, Accrual Earnings Management, Real Earnings Management, and Capital Intensity on the Cost of Equity

Firmansyah

Febriyanto

2018

jda

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This study aims to examince the effects of tax avoidance, accrual earning management, real earnings management and capital intensity on the cost of equity. The population of this study is a manufacturing company listed on the Indonesia Stock Exchange which amounted to 146 companies. The sampling technique used was purposive sampling and resulted in 420 units of analysis. This type of research is quantitative causality by performing hypothesis testing analysis is done by using multiple linear regression model. The findings of this research are tax avoidance will add to the risks that must be borne by investors thus increasing uncertainty over their investment. Investors consider that accrual profit management actions are opportunistic as risk-taking actions as well as real profit management actions. While on Capital Intensity, investors assume the information on the company's fixed assets is not useful in making investment decisions. The conclusions that can be taken are tax avoidance, accrual profit management, and earnings management real positive to the cost of equity. However, capital intensity has a negative effect.

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Section: Resultssupporting

confidence: 91%

Section: Discussionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

The Effects of Tax Avoidance, Accrual Earnings Management, Real Earnings Management, and Capital Intensity on the Cost of Equity

Firmansyah

Febriyanto

2018

jda

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“…While Asea and 4 An emerging line of research studies how tax avoidance strategies affect firm risk (Guenther, Matsunaga, and Williams, 2013;Hutchens and Rego, 2012;Neuman, Omer, and Schmidt, 2013). Unlike these papers about tax risk, we examine the tax system itself (and not tax avoidance strategies).…”

mentioning

confidence: 99%

Taxation and Corporate Risk-Taking

Langenmayr

Lester²

2014

SSRN Journal

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We study whether the corporate tax system provides incentives for risky firm investment. We first model the effects of corporate tax rates and tax loss offset rules on firm risk-taking. Testing the theoretical predictions, we find that firm risk-taking is positively related to the length of tax loss periods. This result occurs because the loss rules shift a portion of investment risk to the government, inducing firms to increase their overall level of risk-taking. Moreover, the corporate tax rate has a positive effect on risk-taking for firms that can expect to use their tax losses, and a negative effect for those that cannot. Thus, the effect of taxes on risky investment decisions varies among firms, and its sign hinges on firm-specific expectations of future tax loss recovery.

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Is managerial rent extraction associated with tax aggressiveness? Evidence from informed insider trading

Jia

Gao

2020

Rev Quant Finan Acc

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Tax Risk and the Cost of Equity Capital

Cited by 55 publications

References 38 publications

The Effects of Tax Avoidance, Accrual Earnings Management, Real Earnings Management, and Capital Intensity on the Cost of Equity

The Effects of Tax Avoidance, Accrual Earnings Management, Real Earnings Management, and Capital Intensity on the Cost of Equity

Taxation and Corporate Risk-Taking

Is managerial rent extraction associated with tax aggressiveness? Evidence from informed insider trading

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