CORPORATE SOCIAL RESPONSIBILITY AND COST OF EQUITY: EVIDENCE FROM CORPORATE TAX DISPUTES

Abstract

This study examines the relation between social concerns on firms' tax positions and their cost of equity. Corporate social performance can influence capital market processes but little empirical evidence has been presented yet in terms of the effects of tax disputes on shareholder preference. I contribute by showing that tax concerns expressed by a social monitoring index are associated with a higher implied cost of equity capital. In other words, firms may lower their cost of equity capital and contribute to the community by acting as non-aggressive taxpayers.