Tax litigation and capital costs: evidence from Brazil
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 examines the impact of tax litigation on the cost of capital for firms listed on the Brazilian Stock Exchange (B3). Using a fixed-effects econometric model based on 1,218 firm-year observations from 174 firms between 2017 and 2023, the results provide evidence that tax litigation significantly increases the cost of debt, reflecting creditors’ increased risk perceptions. However, the cost of equity remains stable, suggesting that shareholders are less sensitive to tax-related disputes. Additionally, a moderating effect is observed where highly leveraged firms face more pronounced increases in borrowing costs due to tax litigation. Firm size and corporate governance quality also significantly influence capital structure and financing costs. This research contributes to the existing literature by explicitly integrating tax litigation as a determinant of capital costs in an emerging-market context, providing robust empirical evidence from Brazil. Practically, these findings underscore the importance for managers to adopt proactive fiscal risk management strategies, particularly for highly indebted firms, to mitigate rising debt costs and enhance competitiveness
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