Taxes, Leverage, and the Cost of Equity Capital

Dhaliwal, Dan S.; Heitzman, Shane; Li, Oliver Zhen

doi:10.1111/j.1475-679x.2006.00214.x

Cited by 271 publications

(172 citation statements)

References 55 publications

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“…More specifically, following Hail and Leuz (), we adopt the approaches developed by Ohlson and Juettner‐Nauroth ()( K OJN ), Easton ()( K MPEG ), Claus and Thomas ()( K CT ), and Gebhardt, Lee, and Swaminathan ()( K GLS ). Then, in line with Dhaliwal, Heitzman, and Zhen (), we subtract the 10‐year U.S. Treasury bond yield from the estimated cost of equity of each model. To mitigate the dependence of our results on a particular approach, we retain the average estimate obtained from the four models ( K AVG ) as our dependent variable (Boubakri et al, ; Boubakri, El Ghoul, and Saffar, ).…”

Section: Resultsmentioning

confidence: 99%

Near and dear? The role of location in CSR engagement

Husted

Jamali

Saffar

2016

Strategic Management Journal

177

112

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Research summary: Building on economic geography and institutional theory, we develop and test theory relating geographic variables to the strength of corporate social responsibility (CSR) engagement and the cost of equity capital. For a large sample of U.S. firms over the period 1998-2009, we find strong and robust evidence that firms located in areas characterized by high levels of local CSR density score higher in CSR engagement. In addition, firms located close to major cities and financial centers exhibit higher CSR engagement compared to firms located in more remote areas. Moreover, the effect of CSR engagement on reducing equity financing costs is even greater for firms in high CSR density areas than for firms in low CSR density areas. Managerial summary: Does the location of CSR engagement by firms affect the strength of CSR engagement by their neighbors? Does the geography of engagement have an impact on financial performance? Our findings show that a firm's CSR engagement increases in areas wherethere is dense CSR engagement and when it is located near large cities. In these areas, norms, values, and knowledge related to CSR are transmitted to firms through face-to-face meetings and frequent social interactions with groups such as peers, labor unions, news media, universities, and community organizations, which tend to be concentrated in large cities. Our findings further highlight that CSR engagement reduces equity financing costs for firms in areas where CSR is widely practiced.

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Section: Resultsmentioning

confidence: 99%

Near and dear? The role of location in CSR engagement

Husted

Jamali

Saffar

2016

Strategic Management Journal

177

112

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“…The use of r mpeg is supported by Botosan and Plumlee () and Botosan et al () who show that this approach produces cost of capital estimates that correlate with risk characteristics in the predicted direction. In addition, following Dhaliwal et al (), we calculate r avg as the average of the ex ante cost of equity capital from four alternative models. Specifically, r avg is the average of the ex ante cost of equity capital estimates derived from models developed by Gebhardt et al (), Claus and Thomas (), Gode and Mohanram () and Easton () ,…”

Section: Empirical Methodologymentioning

confidence: 99%

“…This sample includes 597 Second‐Tier client observations and 597 Other non‐Big 4 client observations. We use two ex ante cost of equity capital estimates to proxy for investor perceptions of financial statement credibility: a measure calculated using the PEG method from Easton () and an average cost of equity capital estimate based on four alternative implied cost of equity measures as in Dhaliwal et al ().…”

Section: Introductionmentioning

confidence: 99%

The Emergence of Second‐Tier Auditors in the US: Evidence from Investor Perceptions of Financial Reporting Credibility

Cassell¹,

Giroux²,

Myers³

et al. 2013

Business Fin & Account

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Abstract:We examine changes in the association between auditor type (Big 4, Second-Tier, and Other non-Big 4) and perceived financial reporting credibility in the wake of events (e.g., Andersen's failure, the implementation of SOX, creation of the PCAOB, etc.) which led to significant growth in Second-Tier client portfolios and increased scrutiny of Second-Tier audit practices. Our results reveal that financial reporting credibility of Second-Tier clients was lower than that of Big 4 clients and was indistinguishable from that of Other non-Big 4 clients preAndersen. However, post-Andersen, we find that financial reporting credibility of Second-Tier clients is higher than that of Other non-Big 4 clients and is indistinguishable from that of Big 4 clients. We expect that our results will be of interest to regulators, both in the United States and in the European Union, who have expressed concerns about the current state of competition in the audit market, management and boards of directors that are contemplating switching to a Second-Tier audit firm, and academics investigating quality differences among audit firm types.

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“…4;2016 4 from Mankiw, Romer, & Weil (1992), although their production function is slightly different. In all simulations, the interest rate and cost of capital are set to 0.1 (see e.g., Dhaliwal, Heitzman, & Li, 2006). The cost of human capital is also set to 0.1.…”

Section: Resource Extraction Climate Costs Avoided and Price Pathmentioning

confidence: 99%

Subsidizing Human Capital to Overcome the Green Paradox—A Demand-Side Approach

Steinkraus¹

2016

JMS

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This paper shifts the perspective of the recent green paradox literature towards the demand side. Based on a simple model, I show that a subsidy on input factors in a Cobb-Douglas production functionmay contribute substantially to postponing resource extraction into the future and, thereby, to limit the future costs of climate change. Specifically, indirect subsidies on human capital, such as investments in education, are plausible policy options to mitigate carbon dioxide emissions because it is robust to short-sighted incentives on the part of politicians and resource owners.

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Taxes, Leverage, and the Cost of Equity Capital

Cited by 271 publications

References 55 publications

Near and dear? The role of location in CSR engagement

Near and dear? The role of location in CSR engagement

The Emergence of Second‐Tier Auditors in the US: Evidence from Investor Perceptions of Financial Reporting Credibility

Subsidizing Human Capital to Overcome the Green Paradox—A Demand-Side Approach

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