The impact of corporate long term tax avoidance and tax uncertainty on cost of equity capital: evidence from Korea

2022 ◽  
Vol 1 (1) ◽  
pp. 1
Author(s):  
Minjo Kang
Keyword(s):  
Tax Avoidance ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
The Impact ◽  
Tax Uncertainty

scholarly journals The Effect of Chief Executive Officer Dominance and Shareholder Rights on Cost of Equity Capital in Pakistan

2020 ◽  
Vol V (III) ◽  
pp. 84-93
Author(s):  
Yawar Miraj Khilji ◽  
Shehzad Khan ◽  
Muhammad Faizan Malik
Keyword(s):  
Chief Executive Officers ◽  
Stock Exchange ◽  
Chief Executive ◽  
Fixed Effect Model ◽  
Equity Capital ◽  
Shareholder Rights ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Firm Level ◽  
The Impact

This Research explores the effect of Chief executive Dominance and Shareholder rights on Cost of equity of listed companies in an emerging equity market, Pakistan. The research is for the period of 2012 to 2018 for which firm level data of top 100 non-financial listed firms from Pakistan Stock Exchange has been examined by using descriptive statistics, a correlation -matrix, Pooled OLS and Fixed Effect Model approach. The impact of controlled variables which includes firm size, Financial Leverage, and Book to market ratio influence on the firms cost of equity has also been investigated. Research results indicate that when Chief executive officers align their interest with that of shareholders, the risk of agency problem is mitigated thus leading to lower cost of equity.

scholarly journals Impact of Corporate Political Connections on Cost of Equity: A Dynamic Panel Approach

2021 ◽  
Vol 13 (3) ◽  
pp. 45-65
Author(s):  
Aamir Amanat ◽  
Ahmed Imran Hunjra ◽  
Salman Ali Qureshi ◽  
Muhammad Hanif ◽  
Muhammad Razzaq Athar
Keyword(s):  
Lower Cost ◽  
Stock Exchange ◽  
Generalized Method Of Moments ◽  
Equity Capital ◽  
Political Connections ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Financing Cost ◽  
Corporate Political Strategies ◽  
The Impact

We analyze the impact of corporate political connections on the cost of equity of non-financial firms listed at the Pakistan Stock Exchange. We extract data from the DataStream and Election Commission of Pakistan for the years 2001 to 2018. The Generalized Method of Moments is used for data analysis. This research finds that firms use political connections to enjoy a lower cost of equity capital. Further, firms with strong ties to political power obtain more benefits on financing cost as compared to non-connected firms. Besides, we also find that firms affiliated with a large business group enjoy a lower cost of equity than non-affiliated connected firms. The findings may be helpful for regulators to formulate suitable policies concerning the use of corporate political strategies and to assist unconnected and non-affiliated firms to access finance easily.

scholarly journals Earnings quality and the cost of equity capital: evidence on the impact of legal background

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ahmed Hassan Ahmed ◽  
Yasean Tahat ◽  
Yasser Eliwa ◽  
Bruce Burton
Keyword(s):  
Earnings Quality ◽  
Institutional Ownership ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Content Type ◽  
The Usa ◽  
The Uk ◽  
The Cost ◽  
The Impact

Purpose Earnings quality is of great concern to corporate stakeholders, including capital providers in international markets with widely varying regulatory pedigrees and ownership patterns. This paper aims to examine the association between the cost of equity capital and earnings quality, contextualised via tests that incorporate the potential for moderating effects around institutional settings. The analysis focuses on and compares evidence relating to (common law) UK/US firms and (civil law) German firms over the period 2005–2018 and seeks to identify whether, given institutional dissimilarities, significant differences exist between the two settings. Design/methodology/approach First, the authors undertake a review of the extant literature on the link between earnings quality and the cost of capital. Second, using a sample of 948 listed companies from the USA, the UK and Germany over the period 2005 to 2018, the authors estimate four implied cost of equity capital proxies. The relationship between companies’ cost of equity capital and their earnings quality is then investigated. Findings Consistent with theoretical reasoning and prior empirical analyses, the authors find a statistically negative association between earnings quality, evidenced by information relating to accruals and the cost of equity capital. However, when they extend the analysis by investigating the combined effect of institutional ownership and earnings quality on financing cost, the impact – while negative overall – is found to vary across legal backdrops. Research limitations/implications This paper uses institutional ownership as a mediating variable in the association between earnings quality and the cost of equity capital, but this is not intended to suggest that other measures may be of relevance here and additional research might usefully expand the analysis to incorporate other forms of ownership including state and foreign bases. Second, and suggestive of another avenue for developing the work presented in the study, the authors have used accrual measures of earnings quality. Practical implications The results are shown to provide potentially important insights for policymakers, creditors and investors about the consequences of earnings quality variability. The results should be of interest to firms seeking to reduce their financing costs and retain financial viability in the wake of the impact of the Covid-19 pandemic. Originality/value The reported findings extends the single-country results of Eliwa et al. (2016) for the UK firms and Francis et al. (2005) for the USA, whereby both reported that the cost of equity capital is negatively associated with earnings quality attributes. Second, in a further increment to the extant literature (particularly Francis et al., 2005 and Eliwa et al., 2016), the authors find the effect of institutional ownership to be influential, with a significantly positive impact on the association between earnings quality and the cost of equity capital, suggesting in turn that institutional ownership can improve firms’ ability to secure cheaper funding by virtue of robust monitoring. While this result holds for the whole sample (the USA, the UK and Germany), country-level analysis shows that the result holds only for the common law countries (the UK and the USA) and not for Germany, consistent with the notion that extant legal systems are a determining factor in this context. This novel finding points to a role for institutional investors in watching and improving the quality of financial reports that are valued by the market in its price formation activity.

The impact of audit quality on earnings management and cost of equity capital: evidence from a developing market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ben Le ◽  
Paula Hearn Moore
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Discretionary Accruals ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Content Type ◽  
Big 4 ◽  
The Government ◽  
The Impact

Purpose This study aims to examine the effects of audit quality on earnings management and cost of equity capital (COE) considering the impact of two owner types: government ownership and foreign ownership. Design/methodology/approach The study uses a panel data set of 236 Vietnamese firms covering the period 2007 to 2017. Because the two main dependent variables of the COE capital and the absolute value of discretionary accruals receive fractional values between zero and one, the paper uses the generalised linear model (GLM) with a logit link and the binomial family in regression analyses. The paper uses numerous audit quality measures, including hiring Big 4 auditors or the industry-leading Big 4 auditor, changing from non-Big 4 auditors to Big 4 auditors or the industry-leading Big 4 auditor, and the length of Big 4 auditor tenure. Big 4 companies include KPMG, Deloitte, EY and PwC, whereas the non-big 4 are the other audit companies. Findings The study finds a negative relationship between audit quality and both the COE capital and income-increasing discretionary accruals. The effects of audit quality on discretionary accruals and the COE capital depend on the ownership levels of two important shareholders: the government and foreign investors. Foreign ownership is negatively associated with discretionary accruals; however, the effect is more pronounced in the sub-sample of state-owned enterprises (SOEs), the firms where the government owns 50% or more equity, than in the sub-sample of Non-SOEs. Originality/value To the best of the knowledge, no prior similar study exists that used the GLM with a logit link and the binomial family regression. Global investors may be interested in understanding how unique institutional settings and capital markets of each country impact the financial reporting quality and cost of capital. Further, policymakers of developing markets may have incentives to improve the quality of financial reporting and reduce the cost of capital which should result in attracting more foreign investments.

Does intellectual capital disclosure affect the cost of equity capital? An empirical analysis in the integrated reporting context

2020 ◽  
Vol 21 (6) ◽  
pp. 985-1007 ◽  
Author(s):  
Antonio Salvi ◽  
Filippo Vitolla ◽  
Nicola Raimo ◽  
Michele Rubino ◽  
Felice Petruzzella
Keyword(s):  
Intellectual Capital ◽  
Equity Capital ◽  
Corporate Disclosure ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Integrated Reporting ◽  
Empirical Examination ◽  
Content Type ◽  
The Cost ◽  
The Impact

PurposeThe purpose of this study is to examine the impact of intellectual capital disclosure on the cost of equity capital in the context of integrated reporting, which represents the ultimate frontier in the field of corporate disclosure.Design/methodology/approachThe authors employ content analysis to measure intellectual capital disclosure levels along with a panel analysis on a sample of 164 integrated reports.FindingsEmpirical outcomes indicate that intellectual capital disclosure levels have a significantly negative association with the cost of equity capital.Originality/valueThis study's major contribution lies in its originality in terms of empirical examination of the relationship between intellectual capital disclosure in integrated reports and the cost of equity capital.

The impact on the cost of equity capital in the effects of integrated reporting quality

2019 ◽  
Vol 29 (2) ◽  
pp. 519-529 ◽  
Author(s):  
Filippo Vitolla ◽  
Antonio Salvi ◽  
Nicola Raimo ◽  
Felice Petruzzella ◽  
Michele Rubino
Keyword(s):  
Reporting Quality ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Integrated Reporting ◽  
The Cost ◽  
The Impact

scholarly journals The Impact of Controlling for Risk on the Value Relevance of Earnings: Evidence from the U.S.

2017 ◽  
Vol 12 (9) ◽  
pp. 38
Author(s):  
Xiaoli Ortega
Keyword(s):  
Firm Size ◽  
Value Relevance ◽  
Explanatory Power ◽  
Equity Capital ◽  
Price Ratio ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Cross Sectional ◽  
Market Beta ◽  
The Impact

Prior research documents the relatively low explanatory power of the earnings-return association in traditional models that regress returns on levels and changes in earnings. However, these studies fail to consider the impact of variation in discount rates, or risk, as a possible cause of the low explanatory power. In this study, I investigate the impact of controlling for risk on the explanatory power of the earnings-return relation. I begin by estimating two related regression models of annual returns on earnings and changes in earnings drawn from prior research. Then, to examine whether controlling for risk affects the explanatory power of the regressions, I sort observations into portfolios formed on various risk proxies, including market beta, firm size, earnings/price ratio, two implied cost of equity capital proxies, and the combination of beta and firm size. I document higher average adjusted R2s that suggest a 30% increase in explanatory power, and larger average coefficient estimates of earnings, when I estimate the return-earnings regressions within risk portfolios than those of the Easton and Harris and Easton and Pae models. These findings suggest that controlling for cross-sectional variation in risk, a denominator effect, improves the explanatory power of the model.

Rank and File Employee Satisfaction and the Implied Cost of Equity Capital

2020 ◽  
pp. 0148558X2097194
Author(s):  
Jiajia Fu ◽  
Yuan Ji ◽  
Jiao Jing
Keyword(s):  
Employee Satisfaction ◽  
Market Competition ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Data Set ◽  
Financing Cost ◽  
The Cost ◽  
Market Benefits ◽  
The Impact

Rank and file employees execute firms’ daily operating activities, but prior research rarely examines their importance due to a lack of employee information. In this article, we use a novel data set—company reviews by rank and file employees—to provide evidence on the impact of employee satisfaction on a firm’s cost of equity capital. We find that firms with higher employee satisfaction have a lower cost of equity. Our results are robust to a variety of endogeneity tests and model specifications. We also find that the effect of employee satisfaction is more pronounced for firms with higher risk, greater financial constraints, and higher labor intensity or product market competition where labor is more critical to firm success. Further analysis shows that the negative association between employee satisfaction and the cost of equity is primarily grounded in reviews from current rather than former employees. Finally, we document that firms with high employee satisfaction experience lower systematic and idiosyncratic risk. Overall, our article presents novel evidence on the capital market benefits of higher employee satisfaction, particularly with regard to financing cost reduction.

scholarly journals The Effect of Corporate Tax Avoidance on the Cost of Equity

2016 ◽  
Vol 91 (6) ◽  
pp. 1647-1670 ◽  
Author(s):  
Beng Wee Goh ◽  
Jimmy Lee ◽  
Chee Yeow Lim ◽  
Terry Shevlin
Keyword(s):  
Information Quality ◽  
Tax Avoidance ◽  
Cash Flows ◽  
Equity Capital ◽  
Testable Hypothesis ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Corporate Tax ◽  
Long Run ◽  
The Cost

ABSTRACT 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. JEL Classifications: G32; H26; M41.

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