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

Pin Wang, Ali Zhou and Yi Wang

Emerging Markets Finance and Trade, 2022, vol. 58, issue 6, 1702-1711

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.

Date: 2022
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DOI: 10.1080/1540496X.2021.1921731

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