Tax Authority Monitoring and Equity Pricing: A Revision to Prior Inferences
本文使用改进的审计概率数据和两个公司层面的监管代理变量，发现税务机关监管与权益资本成本正相关，推翻了先前负相关的结论，并指出非线性关系可能是矛盾原因。
ABSTRACT We re-examine the role of tax authority monitoring in equity pricing. Prior research documents a negative association between IRS audit probability and the cost of equity capital. By contrast, when using improved audit probability data and two firm-specific tax authority monitoring proxies, we identify a positive association between tax authority monitoring and the cost of equity. We find that a nonlinear association between monitoring and the cost of equity potentially accounts for these contradictory conclusions. Our results suggest that, on average, investors perceive the potential negative consequences of tax authority monitoring (e.g., increased tax payments) as outweighing the value-enhancing consequences (e.g., reduced managerial rent extraction), resulting in a higher cost of equity. Consistent with this interpretation, our results are stronger among firms with the opportunity to engage in intangibles-based income shifting, a lucrative but highly scrutinized tax avoidance opportunity, and weaker among firms without other strong external monitoring mechanisms.