Investigating the moderating role of tax avoidance on the relationship between corporate reputation and implicit cost of capital

اقتصاد پولی مالی

Article 4, Volume 28, Issue 22, March 2022, Pages 105-126   

Document Type: Original Article

DOI: 10.22067/mfe.2022.74310.1150

Authors

Abdolrasoul Rahmanian Koushkaki^{* 1}; Mohsen Omrany²

¹Assistant Professor, Department of Accounting, Payame Noor University, Tehran, Iran.

²MSc., Department of Accounting, Payame Noor University, Tehran, Iran.

Abstract

1- INTRODUCTION
Company executives are trying to take steps to reduce their income tax, and one of the measures that may be taken to reduce taxes payable and increase post-tax revenue is to use a solution called tax avoidance. For this reason, tax avoidance creates a cloud of information environment and creates information asymmetries related to the company's reputation among investors. In other words, tax avoidance causes asymmetry in corporate reputation information and affects capital costs. So reputable companies strive to provide high quality financial reporting. Tax avoidance disrupts the information environment and creates information asymmetries related to the company's reputation among investors. Therefore, it is expected that the relationship between firm reputation and implicit cost of capital is different in companies that use tax avoidance. Therefore, the purpose of this study is to investigate the moderating role of tax avoidance on the relationship between firm reputation and implicit cost of capital.
 
 
2- THEORETICAL FRAMEWORK
From the following two perspectives, tax avoidance as a moderating role is expected to affect the relationship between firm credit and the implicit cost of capital. First, a company's reputation is affected by tax planning, and tax avoidance is likely to negatively affect a company's reputation. When examination how tax avoidance affects the relationship between a firm's reputation and the cost of capital, tax avoidance interferes with the information environment and asymmetry of investors. Second, reputable companies strive to provide high quality financial reporting. In the case of tax avoidance, financial reporting is possible, even if the quality of accounting information is unclear. Therefore, tax avoidance is expected to cause asymmetry in corporate reputation information and affect capital costs.
3- METHODOLOGY
The statistical sample of the research includes 120 companies listed on the Tehran stock exchange, which has been studied during the years 1392 to 1398. the dependent variable of research is the implicit cost of capital and the independent variable is company reputation and the moderator variable isf tax avoidance. in this research, in order to collect data and information, the library method has been used. the information required by the companies has also been collected through the new rahavard software, the official website of the stock exchange organization and the reports of the board of directors. finally, the data were prepared by using excel software and then final analysis was performed by using ives software.
4- RESULTS & DISCUSSION
Findings show that there is a negative and significant relationship between company reputation with implicit cost of capital and tax avoidance with implicit cost of capital. also, tax avoidance as a moderator affects the relationship between corporate reputation and the implicit cost of corporate capital. also, research findings show that more famous companies have lower capital costs, because high reputation indicates better company quality, proper transfer of competencies and doing business in accordance with the interests of shareholders. the company's reputation is affected by tax planning. in other words, when a company becomes involved in tax avoidance, it has a negative impact on the company's reputation. therefore, tax avoidance is expected to cause asymmetry in corporate reputation information and affect capital costs.
5- CONCLUSIONS & SUGGESTIONS
It can be said that the implicit cost of capital plays a key role in managers' decisions. in fact, without knowing the cost of capital, the company can not decide what tools to use to raise the funds needed for its investments, and because of resource constraints, economic units should choose a combination of financial resources. to this end, managers, as representatives of shareholders and stakeholders, should try to regulate the capital structure of the company in such a way that the implicit cost of the company's capital is minimal and as a result, the company's reputation and shareholder wealth are lost. reputable companies are more inclined to reduce the implicit cost of capital, because reputation plays an important role in determining behavior, and by increasing the company's reputation, the firm's stability increases and sustainable management is possible. the effective tax rate has a positive and significant relationship with the cost of the company's capital. the reason for this can be said that managers pay more attention to tax reduction of financial statements, which in most listed companies, tax avoidance is done through tax rates. the company's reputation is affected by tax planning. in other words, when a company becomes involved in tax avoidance, it has a negative impact on the company's reputation. therefore, tax avoidance is expected to cause asymmetry in corporate reputation information and affect capital costs. hence, reputable companies strive to provide high quality financial reporting.

Keywords

Tax Avoidance; corporate reputation; implied cost of capital

Supplementary Files

Extended abstract 22.pdf

References

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