Nermine Medhioub and Saoussen Boujelbene
This study examines the association between corporate tax avoidance and the cost of debt (COD). It also investigates the moderating effect of integrated report (IR) assurance on…
Abstract
Purpose
This study examines the association between corporate tax avoidance and the cost of debt (COD). It also investigates the moderating effect of integrated report (IR) assurance on tax avoidance/COD relationship.
Design/methodology/approach
Based on a sample of 76 South African companies listed on the Johannesburg Stock Exchange (JSE) from 2010 to 2020, the authors built and estimated regression models using the feasible generalized least squares (FGLS) method. The authors significantly mitigated the endogeneity concerns using propensity score matching (PSM), difference-in-differences (DID) analysis and fixed effects regression.
Findings
The authors found that tax-avoiding firms pay higher costs of debt due to information asymmetries and agency problems. Bankers systematically reflect the increase in tax avoidance by adjusting the COD upward. However, results show that the assured IR disclosure mitigates these problems, which decreases the COD for tax avoidance strategies adopters. Using a quasi-natural experiment, well-grounded evidence was provided showing that the decrease in the COD for debtors who engage in tax avoidance practices is attributed to the availability of an assured IR.
Practical implications
This study provides plausible evidence in favor of the role that an assured IR can play in capital allocation decisions. Consequently, it is likely to push policymakers in South Africa and other countries to set standards for IR assurance.
Originality/value
This is the first study that investigates and validates the role of IR assurance in solving the controversy about the “tax saving effect” vs. “risk exposure effect” that bankers face while identifying debtors with successful (non-risky/cash-saving) tax avoidance practices and those with non-successful (risky) ones.
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Saoussen Boujelben and Nermine Medhioub
This paper aims to investigate the impact of combined assurance on tax avoidance in South Africa.
Abstract
Purpose
This paper aims to investigate the impact of combined assurance on tax avoidance in South Africa.
Design/methodology/approach
This study is founded on a sample of 76 South African firms listed on the Johannesburg Stock Exchange over the 2014–2022 period. The authors used the feasible generalized least squares regression estimation technique to test the hypothesis. To address endogeneity issues, this study conducted a difference-in-differences (DID) analysis based on propensity score matching.
Findings
The results reveal that combined assurance negatively impacts tax avoidance. Implementing combined assurance, as an integrated risk management approach, significantly minimizes tax risk. The DID analysis provides well-founded evidence attributing the decline in tax avoidance levels to the availability of combined assurance. The inferences are robust to using alternative measures of tax avoidance, testing combined assurance impact across various tax avoidance levels and controlling for the COVID-19 effect.
Practical implications
This study presents valuable insights for firms, managers and policymakers. The findings encourage companies to bolster their risk management practices, opting for combined assurance over a sole risk monitoring mechanism. This approach enables the company to ensure better compliance with tax regulations, thereby enhancing overall efficiency. Besides, the disciplining effect of combined assurance motivates managers to make informed decisions, avoid tax avoidance strategies and safeguard corporate reputation. Moreover, this research calls upon policymakers to promote effective global regulatory frameworks for combined assurance practices.
Originality/value
The research brings original insights by exploring the influence of combined assurance on tax avoidance. This addresses a gap in the current literature that has predominantly focused on the relationship between tax avoidance and individual lines of defense.