Abstract

http://ssrn.com/abstract=2348732
 


 



Towards an Optimal Level of Tax Avoidance


Kirsten A. Cook


Texas Tech University - Area of Accounting

William Moser


Miami University

Thomas C. Omer


University of Nebraska at Lincoln - School of Accountancy

October 29, 2013


Abstract:     
We extend research that investigates the relation between tax avoidance and ex ante cost of capital by providing evidence that investors perceive tax avoidance differently at different levels. We partition our sample according to three measures of tax avoidance (book-tax differences, permanent book-tax differences, and 5-year cash effective tax rate) and examine the associations between tax avoidance and ex ante cost of capital for the top quintile and the bottom four quintiles, respectively. Increasing tax avoidance from the minimum value to the 80th percentile results in lower ex ante cost of capital, suggesting that investors view the benefits of tax avoidance to exceed the costs at these relatively low levels. In contrast, increasing tax avoidance from the 80th percentile to the maximum value results in higher ex ante cost of capital, suggesting that investors view the costs of tax avoidance to outweigh the benefits at these relatively high levels.

Number of Pages in PDF File: 46

Keywords: Tax Avoidance, Cost of Capital

JEL Classification: K34, H25, G32

working papers series





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Date posted: November 3, 2013  

Suggested Citation

Cook, Kirsten A. and Moser, William and Omer, Thomas C., Towards an Optimal Level of Tax Avoidance (October 29, 2013). Available at SSRN: http://ssrn.com/abstract=2348732 or http://dx.doi.org/10.2139/ssrn.2348732

Contact Information

Kirsten A. Cook
Texas Tech University - Area of Accounting ( email )
P.O. Box 42101
Lubbock, TX 79409
United States
William J. Moser (Contact Author)
Miami University ( email )
Oxford, OH 45056
United States
Thomas C. Omer
University of Nebraska at Lincoln - School of Accountancy ( email )
307 College of Business Administration
Lincoln, NE 68588-0488
United States
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