We incorporate fixed and variable costs into a cash flow based CAPM to investigate how each type of cost affects the cost of equity capital. A decrease in fixed costs always reduces cost of capital. With positive fixed costs, a decrease in the variable cost rate reduces cost of capital despite...

Many countries have imposed tax policies that limit the deductibility of interest costs, creating a plausibly exogenous increase in the net cost of borrowing. The limits are based on financial accounting numbers, adding a new incentive into managers’ choices. Firms in these countries are also...

Prior studies document that incentive factors (i.e., equity compensation, shareholder activism, financial constraints, etc.) motivate managers to avoid more taxes, which suggests that managers overlook tax planning opportunities (TPOs) in the absence of incentives. In this study, I use a...

Taking advantage of a unique financial reporting feature in the Chinese setting, this study examines whether the education level of a firm’s rank-and-file employees is associated with its level of tax planning. We conjecture that highly educated employees should either play an information role...