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The Effect of Corporate Governance on Weighted Average Cost of Capital and Tax Avoidance

기업지배구조가 가중평균자본비용과 조세회피간의 관련성에 미치는 영향

  • Lee, Hwa Ryeong (Division of Management and Accounting, Pusan University) ;
  • Kim, Jin Seop (Division of Management and Accounting, Pusan University)
  • 이화령 (부산대학교 대학원 경영학과) ;
  • 김진섭 (부산대학교 대학원 경영학과)
  • Received : 2017.04.24
  • Accepted : 2017.05.12
  • Published : 2017.05.31

Abstract

This paper examines the effects of strong corporate governance for listed companies in accessing capital markets from the point of view of the weighted average cost of capital. Results found that corporate governance had a significant negative(-) relation to the weighted average cost of capital. This finding is consistent with previous research and implies that the higher shareholder ownership and foreign ownership have confidence in the financial information of the company, and therefore, risk is reduced for investors. This results in lower expected rates of return and companies will pay a lower cost of capital. Second, tax evasion had a positive effect(+) on the weighted average cost of capital. The low quality of corporate accounting information is expected to increase tax avoidance. Accordingly, this results in increased risk. If the required rate of return is high in its impact,it leads to increased capital costs. In addition, corporate governance and tax avoidance factors showed a negative affect (-) on the weighted average cost of capital. Corporate governance plays an important role in tax avoidance and the weighted average cost of capital, and strong corporate governance reducesthe impact on tax avoidance. In addition, the weighted average cost of capital in capital markets showed the reducing effect.

Keywords

corporate governance;the weighted average cost of capital;tax avoidance;Foreign Investors Ownership;Large Ownership

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