Company Reputation, Implied Cost of Capital and Tax Avoidance: Evidence from Korea

Imhyeon Kim, Jinsoo Kim and Jeongyeon Kang
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Imhyeon Kim: Department of Accounting, Daegu University, 201 Daegudae-ro, Gyeongsan-si 38453, Korea
Jinsoo Kim: Department of Accounting, Jeju National University, 102 Jejudaehak-ro, Jeju-si 63243, Korea
Jeongyeon Kang: College of Global Business, Sun Moon University, 70, 221 Sunmoon-ro, Tangjeong-myeon, Asan-si 31460, Korea

Sustainability, 2020, vol. 12, issue 23, 1-16

Abstract: This study aims to investigate the relationship between company reputation and the implied cost of capital in Korean companies from 2003 to 2016, based on research by Cao et al. (2015). In addition, we would like to examine the effect of tax avoidance. Company reputation increases corporate sustainability and enables sustainable management. In this study, Brandstock Top Index (BSTI), which represents Korea’s top 100 brands, was used as an interest variable representing company reputation. To examine the relationship between company reputation and implied cost of capital, the multiple linear regression analysis was conducted using various measures of implied cost of capital as a dependent variable. As a result of empirical analysis, company reputation and implied cost of capital showed a significant negative relationship. The higher the company’s reputation, the less information asymmetry in the stock market, indicating that the implied cost of capital decreases. A significant negative relationship between company reputation and implied cost of capital was not found in a group that was aggressive in tax avoidance. The contributions of this study are as follows. First, we presented the empirical result that company reputation and implied cost of capital were negatively related in Korea. It showed empirically the importance of company reputation in the Korean stock market. Second, in addition to the relationship between company reputation and implied cost of capital, prior research was expanded considering tax avoidance.

Keywords: company reputation; sustainability management; implied cost of capital; tax avoidance (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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