NDLI: Tax avoidance and underleverage puzzle: Korean evidence

Content Provider	Springer Nature Link
Author	Lim, Youngdeok
Copyright Year	2011
Abstract	This paper examines whether tax avoidance substitutes for the use of debt, as well as investigating the impact of the tax-exhaustion effect and the cost of debt in this relationship. Applying a modified version of the tax-avoidance measure in Desai and Dharmapala (Rev Econ Stat 91:537–546, 2006), I determine the marginal substitution effect of tax avoidance for the use of debt for a large sample of Korean firms, generalizing the evidence of Graham and Tucker (J Financ Econ 81:563–594, 2006). Furthermore, I find that the debt-substitution effect increases with the probability of losing tax shields, suggesting that the tax-exhaustion effect interacts with the debt-substitution effect. In addition, the debt-substitution effect becomes stronger when the cost of debt is high, indicating that the cost of debt is a determinant of the substitution effect. The debt-substitution effects of tax avoidance suggest that tax-avoidance activities could offer a partial explanation for the underleverage puzzle.
Starting Page	333
Ending Page	360
Page Count	28
File Format	PDF
ISSN	0924865X
Journal	Review of Quantitative Finance and Accounting
Volume Number	39
Issue Number	3
e-ISSN	15737179
Language	English
Publisher	Springer US
Publisher Date	2011-10-12
Publisher Place	Boston
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Tax avoidance Underleverage puzzle Debt-substitution Tax-exhaustion Operations Research/Decision Theory Econometrics Finance/Investment/Banking Accounting/Auditing
Content Type	Text
Resource Type	Article
Subject	Finance Accounting

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