Discussion of "The Effect of Tax Haven Utilization on the Implied Cost of Equity Capital: Evidence from U.S. Multinational Firms"

2018 ◽  
Vol 17 (2) ◽  
pp. 71-73
Author(s):  
Peter Easton
Keyword(s):  
Multinational Firms ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Tax Haven ◽  
Implied Cost Of Equity

The Effect of Tax Haven Utilization on the Implied Cost of Equity Capital: Evidence from U.S. Multinational Firms

2018 ◽  
Vol 17 (2) ◽  
pp. 41-70 ◽  
Author(s):  
Grantley Taylor ◽  
Grant Richardson ◽  
Ahmed Al-Hadi ◽  
Ivan Obaydin
Keyword(s):  
Standard Deviation ◽  
Multinational Firms ◽  
Positive Association ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Standard Deviation Increase ◽  
Economic Significance ◽  
Tax Haven ◽  
Implied Cost Of Equity

ABSTRACT This study examines the effect of tax haven utilization on the implied cost of equity capital (ICOE) based on a sample of publicly listed U.S. multinational firms over the 2006–2014 period. Our regression results show that tax haven utilization is significantly positively associated with the ICOE. In terms of economic significance, we find that, on average, a one-standard deviation increase in tax haven utilization leads to an increase in the ICOE for our sample firms by approximately 0.30 percent or 30 basis points. We also observe that our regression results are robust to a number of endogeneity checks. In additional analysis, we find that high agency costs are likely to magnify the positive association between tax haven utilization and the ICOE, while high independent director monitoring could moderate this association. Overall, this study provides unique insights into the effect of tax haven utilization on the ICOE.

scholarly journals Equity-Based Compensation For Outside Directors And Cost Of Equity Capital

2013 ◽  
Vol 30 (1) ◽  
pp. 15 ◽  
Author(s):  
Induck Hwang ◽  
Hyungtae Kim ◽  
Sangshin Pae
Keyword(s):  
Lower Cost ◽  
Negative Relationship ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Outside Directors ◽  
Total Compensation ◽  
The Cost ◽  
Implied Cost Of Equity

<p>This study provides evidence on the association between equity-based compensation for outside directors and the implied cost of equity capital. Based on the premise that equity-based compensation for outside directors better aligns the interests of the directors with those of shareholders, we investigate whether the more equity-based compensation is granted to outside directors, the lower cost of equity capital firms enjoy. We find a negative relationship between the proportion of equity-based compensation to total compensation for outside directors and the cost of equity capital. Our findings suggest that equity-based compensation for outside directors, by motivating the directors to play their monitoring role more faithfully, reduces agency risks resulting in the lower cost of equity capital.</p>

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