This book provides a comprehensive overview of the implications of tax avoidance for a firm’s capital structure, highlighting the key role played by free cash flow and agency conflicts. First, the book provides an outline of the theories and empirical evidence concerning the role of taxes in the Theory of Capital Structure. It reviews the studies investigating the relationship between agency conflicts and capital structure. The book explores the role of free cash flow and agency conflicts in the relationship between tax avoidance and capital structure. In the final section, the results of an empirical investigation conducted on a sample of U.S. public firms are also presented. The empirical research examines whether and how tax avoidance is associated with debt covenant violation across the stages of the corporate life cycle. Specifically, the research uses the concept of the corporate life cycle stage to analyse whether and how the association between tax avoidance and debt covenant violation varies in different agency settings. Consistent with the hypotheses drawn on the Agency Theory, the findings of the empirical research suggest life cycle stages moderate the association between tax avoidance and debt covenant violation.
Overall, this book sheds light on the potential implications of tax avoidance activities for a firm’s capital structure. The book will be of interest to both experienced and early-stage scholars interested in the topic. Moreover, the book will also be of interest to policymakers, investors, analysts, lenders, and other market participants.
Author(s): Alessandro Gabrielli
Series: SIDREA Series in Accounting and Business Administration
Publisher: Springer-SIDREA
Year: 2023
Language: English
Pages: 102
City: Bologna
Preface
Acknowledgments
Contents
Chapter 1: Introduction
References
Chapter 2: Tax Avoidance as a Source of Financing
2.1 The Role of Taxes in the Theory of Capital Structure
2.2 The Debt-Tax Avoidance Substitution Hypothesis
2.3 Implications of Tax Avoidance for the Capital Structure
References
Chapter 3: Tax Avoidance and Capital Structure in an Agency Perspective
3.1 Agency Theory: An Overview
3.1.1 The Shareholders-Managers Conflict
3.1.2 The Shareholders-Bondholders Conflict and the Agency Benefits of Debt
3.1.3 Agency Conflicts and Capital Structure
3.2 The Agency Theory of Tax Avoidance
3.3 Tax Avoidance and Capital Structure in a Principal-Agent Perspective
3.4 Tax Avoidance and Capital Structure: Free Cash Flow vs. Agency Benefits of Debt
3.4.1 The Free Cash Flow Effect
3.4.2 The Debt Substitution Effect
3.4.3 The Debt Monitoring Effect
3.5 Tax Avoidance and Capital Structure: A Focus on Debt Covenants
3.5.1 The Role of Debt Covenants in the Capital Structure and the Risks of Their Violation
3.5.2 Accounting and Tax Discretion as Violation Preventing Tools
References
Chapter 4: Tax Avoidance and Debt Covenant Violation Across the Life Cycle Stages of a Firm
4.1 Corporate Life Cycle: An Agency View
4.2 Tax Avoidance and Debt Covenant Violation: A Theoretical Agency Framework Based on the Corporate Life Cycle
4.3 Tax Avoidance and Debt Covenant Violation: A Corporate Life Cycle Hypothesis
4.3.1 The Introduction Stage
4.3.2 The Growth Stage
4.3.3 The Mature Stage
4.3.4 The Decline Stage
References
Chapter 5: Tax Avoidance and Debt Covenant Violation: Does Corporate Life Cycle Matter?
5.1 Research Motivation
5.2 Research Methodology
5.2.1 Sample
5.2.2 Research Design and Variables Measurements
5.3 Empirical Results
5.3.1 Descriptive Statistics
5.3.2 Univariate Analysis
5.3.3 Results from the Main Analyses
5.3.4 Results from the Life Cycle-Wise Analyses
5.4 Robustness and Endogeneity Checks
5.4.1 Different Operationalization of the Dependent Variable
5.4.2 Propensity Score Matching Analysis
5.5 Discussion and Conclusions
References
Chapter 6: Final Remarks
6.1 Summary
6.2 Potential Avenues for Future Research
References
