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Tax avoidance and cost of debt: evidence from a natural experiment in China

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  • Wei Cen
  • Naqiong Tong
  • Yushi Sun

Abstract

This study examines the impact of tax avoidance on the cost of debt using a natural experiment in China. Existing literatures identify two channels about how debt holders perceive tax avoidance behaviour. But there is no census on why and when one channel prevails or dominates the other one. Using China's New Regulation on bonds issuance in 2015 as a natural experiment, we find a negative (positive) association exists between tax avoidance and the cost of debt before (after) the New Regulation. We also find that both going public and state ownership have significant impacts on the tax avoidance and cost of debt relationship. Our findings suggest that debt holders’ perception on tax avoidance behaviour varies with external corporate governance regulations.

Suggested Citation

  • Wei Cen & Naqiong Tong & Yushi Sun, 2017. "Tax avoidance and cost of debt: evidence from a natural experiment in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(5), pages 1517-1556, December.
    • Handle: RePEc:bla:acctfi:v:57:y:2017:i:5:p:1517-1556
    DOI: 10.1111/acfi.12328
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    Cited by:

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    5. Jianlei Han & Jing He & Zheyao Pan & Jing Shi, 2018. "Twenty Years of Accounting and Finance Research on the Chinese Capital Market," Abacus, Accounting Foundation, University of Sydney, vol. 54(4), pages 576-599, December.
    6. Feng Huang & Jie Gao, 2022. "Customer and Tax Avoidance: How Does Customer Geographic Proximity Affect a Supplier’s Tax Avoidance?," Sustainability, MDPI, vol. 14(22), pages 1-30, November.
    7. Yi Jiang & Stewart Jones, 2018. "Corporate distress prediction in China: a machine learning approach," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(4), pages 1063-1109, December.
    8. Oshota, Sebil Olalekan, 2024. "Effect of Tax Avoidance on Cost of Capital in Nigeria Sebil Olalekan," African Journal of Economic Review, African Journal of Economic Review, vol. 12(2), June.
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