The Impact of Tax Litigation on the Cost of Capital: Evidence from Brazilian Listed Companies
DOI:
https://doi.org/10.11606/issn.1982-6486.rco.2025.234235Keywords:
Tax litigation, Cost of capital, Corporate governance, Fiscal risk, Brazilian listed companiesAbstract
This study investigates tax-related litigation effects on capital costs of firms listed on the Brazilian Stock Exchange (B3) Using 1,218 observations based on 174 firms between 2017 and 2023, a fixed-effects econometric model was used to investigate the impact of tax disputes on the cost of debt and equity. The findings show evidence that tax litigation increases the cost of debt as creditors see increased credit risks. But the cost of equity is stable, indicating that shareholders do not alter their expectations for returns in response to tax disputes. Firm size and corporate governance quality are other determinants of capital structure, the assessment notes. The main contribution of this study to the literature consists in considering tax litigation as an element to be evaluated in calculating the capital costs of companies from emerging markets, offering an empirical evidence from Brazil. The study's practical implications offer suggestions for corporate managers to use proactive fiscal risk management practices to counteract rising financing costs and improve competitiveness.
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