Aggregate corporate tax avoidance and cost of capital

• 成果类型: Article
• 署名作者: Sikes, Stephanie A.; Verrecchia, Robert E.
• 署名单位: University of Illinois System; University of Illinois Chicago; University of Illinois Chicago Hospital; University of Pennsylvania
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-025-09879-3
• 发表日期: 2025
• 页码: 2868-2921
• 关键词: us multinational firms; IMPLIED COST; gains taxes; income; RISK; state; INVESTMENT; earnings; GROWTH; return

摘要

We identify a pecuniary externality arising from corporate tax avoidance. Firms share risk with the government via taxation. The lower the tax rate applied to a firm's earnings, the more risk its shareholders bear. As more firms avoid taxes, the variance of the market's after-tax cash flow increases. Consequently, the covariance of a firm's cash flow with the market cash flow and thereby its cost of capital increases. This occurs regardless of a firm's tax avoidance. Consistent with our prediction, we find that firms' implied cost of capital relates positively to aggregate corporate tax avoidance regardless of a firm's level of tax avoidance. As we predict, the pecuniary externality is stronger for firms whose cash flow covaries more with the market cash flow and is driven by tax avoidance strategies that reduce a firm's marginal tax rate (e.g., income shifting of U.S. multinationals) as opposed to reducing its tax base.