Corporate Tax Integrity and the Cost of Debt: Evidence from China. Issue 6 (3rd May 2022)

• Record Type: Journal Article
• Authors: Wang, Pin; Zhou, Ali; Wang, Yi
• Is Part Of: Emerging markets finance & trade. Volume 58:Issue 6(2022)
• Page Start: 1702
• Page End: 1711
• Publication Date: 2022-05-03
• Subjects: Corporate tax integrity -- cost of debt -- business risk; G32; Balkan Peninsula -- Commerce -- Periodicals; Balkan Peninsula -- Foreign economic relations -- Periodicals; Europe, Central -- Commerce -- Periodicals; Europe, Central -- Foreign economic relations -- Periodicals; Europe, Eastern -- Commerce -- Periodicals; Europe, Eastern -- Foreign economic relations -- Periodicals; Turkey -- Commerce -- Periodicals; Turkey -- Foreign economic relations -- Periodicals; Asia -- Commerce -- Periodicals; Asia -- Foreign economic relations -- Periodicals; Eurasia -- Commerce -- Periodicals; Eurasia -- Foreign economic relations -- Periodicals; 382.05
• DOI: 10.1080/1540496X.2021.1921731
• Languages: English
• ISSNs: 1540-496X

Abstract

ABSTRACT: This study examines whether and how tax integrity affects the cost of debt. Whereas most previous studies capture firms' trust indirectly, we capture a firm's earned trust more directly by using its tax-paying credit rating as a proxy. We find that tax integrity is negatively related to the cost of debt. We also examine whether the firm ownership affects the relationship between a firm's tax integrity and the cost of debt, and find a negative effect that is only significant for non-state-owned enterprises. Finally, we identify business risk as a channel through which tax integrity affects the cost of debt.