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Corporate Tax Integrity and the Cost of Debt: Evidence from China

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  • Pin Wang
  • Ali Zhou
  • Yi Wang

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.

Suggested Citation

  • Pin Wang & Ali Zhou & Yi Wang, 2022. "Corporate Tax Integrity and the Cost of Debt: Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(6), pages 1702-1711, May.
  • Handle: RePEc:mes:emfitr:v:58:y:2022:i:6:p:1702-1711
    DOI: 10.1080/1540496X.2021.1921731
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