The Study On The Relationship Between External Supervision,Corporate Tax Avoidance And The Cost Of Debt

Company tax avoidance and debt financing costs have been current topic in the field of the practical and theoretical research.In April 2016,tax avoidance problems are pushed to the cusp with exposure of Panama paper leakage event.Effective tax avoidance is the precious economic resource accumulated by the enterprise,and it is an important way to form the market competitive advantage.However,tax avoidance is risky.Tax avoidance may lead to uncertainty of cash flow due to agency problem,tax audit risk and information asymmetry risk.In recent years,it is more difficult to make rational credit decisions and prevent risk for bank creditors facing severe and complex business environment.Under these circumstances,it is particularly important to study the way how creditors view the issue of tax avoidance.This paper describes the way how tax avoidance effect on debt financing costs.Although corporate tax avoidance increases current after-tax cash flows,it facilitates more opaque reporting.In addition,insiders may take advantage of the complex,hidden tax avoidance to occupy cash flow,damaging to the interests of creditors.Based on the concept of tax avoidance agent theory,from a new perspective of external supervision,this paper examines the role of the proportion of institutional investors and analysts following on regulating the relationship between the corporate tax avoidance and cost of debt.My sample consists of firms listed on the Chinese(Shanghai and Shenzhen)A-share stock market over the 2009–2015 period.These findings indicate that firms with higher tax avoidance incur the higher cost of debt.That is,the creditor considered corporate tax aggressiveness as unfavorable factors.A higher level of tax avoidance will decline the quality of information,increase the possibility of managerial rent diversion,and more likely to incur tax authorities audit.These risks may be offset to a variety of tax benefits.Therefore,creditors will raise return for self-protection.This paper suggests that,improving the level of external governance can significantly weaken the positive correlation between tax avoidance and debt financing costs.Institutional investors and analysts play a positive role on the relationship between tax avoidance and cost of debt financing by helping alleviate agency risk and information risk triggered by tax aggressiveness.This paper elaborates the impact of corporate tax avoidance on the cost of debt financing,and helps us to deepen our understanding of corporate tax avoidance behavior and creditor's credit decision-making.In addition,this paper examines the influence of tax avoidance and debt financing cost from the new perspective of external supervision,and enriches the research on tax avoidance.