Variability in Book－Tax Differences and Cost of Capital
Asian Tax Journal Vol. 13 No. 2 (2012), pp. 117-140
Abstract
The purpose of our study is to figure out the relation between the variability of book－taxdifference (BTD) and cost of capital, in order to examine how variability of BTD is assessed by investors and debt holders. We find the positive and significant relation between the variability of BTD and cost of capital. This is because the implied cost of capital have a propensity to increase when the uncertainty of accounting information, measured by the variability of BTD, increases. Also, our findings are suggesting that not only stockholders, but also debt holders recognize the increased information risk when the variability of BTD increases. Prior studies argue that BTD is correlated with the cost of capital. We extend these researches by applying variability of BTD as an indicator of earnings quality and risk to the empirical models.
Keywords
- variability of Book－Tax Difference
- cost of equity capital
- cost of debt capital
Related Articles
Earnings Downside Risk and Cost of Debt Capital
26(5) 63-87
The Effect of Smoothing of GAAP Effective Tax Rates on Credit Ratings and the Cost of Debt
21(5) 9-57
Dividend Income Tax Incentives and the Cost of Equity Capital
21(2) 93-125
The Effect of Tax Risk and Tax Avoidance on Credit Rating and Cost of Debt
20(2) 163-204
The Effect of Accruals Quality on Credit Rating and Cost of Debt －Focus on the Innate and Discretionary of Accruals Quality－
19(4) 9-48