| dc.description.abstract | This paper investigates the relationship between tax avoidance and the cost of debts in the Vietnamese market. Empirical literature suggests that tax avoidance generates savings which could be used as a substitute for debts (Graham and Tucker, 2006; Lim, 2010). With this tool, companies increase their self-financing capacity and have less need to borrow else, which in turn reduces the default risk and result in a lower cost of borrowing (Lim, 2011, Kholbadalov, 2013; Masri and Martani, 2014). This study uses the book-tax difference and discretionary accruals as two proxies to measure tax avoidance. Using a sample of 173 companies listed on Ho Chi Minh Stock Exchange (HOSE) over the three-year period from 2012 to 2014, the study found a significant and negative relationship between tax avoidance and effective interest rates. The results support the trade-off theory of leverage as well as the debt-substitution effect as suggested in previous studies. Additionally, the findings of control variables indicate a significant and negative correlation between the cost of debts and firm size, implying that bigger firms obtain more favorable interest rates. The most major limitation remains in the measure of tax avoidance since this information is confidential and not readily available in public resources. Thus, it can only be estimated. Further studies are suggested to examine the same relationship of tax avoidance and cost of debt but under the control of institutional investors as such powerful investors may substantially affect tax shelter decisions. | en_US |
