Does Tax Havens Direct Investments Raise Company’s Cost Of Equity Capital?

Enterprise tax havens direct investments lead to the tax base erosion and transfer of profits(BEPS)problem,causing the extensive concerns of governments and international organizations,and also,equity capital are heated debated by academia and industry,but few scholars focus on the relationship between enterprise direct investment on tax havens and the equity capital cost.Based on research sample of A-share listed companies in Shanghai and Shenzhen Stock markets from 2006 to 2018,this paper explores the impact of corporate tax haven direct investment on company’s cost of equity capital,and also the impact mechanisms between them from the perspective of financial risk and tax risk.Furthermore,this paper also explores the influence of property nature on direct investment on tax havens and corporate equity capital cost,as well as the governance effect of internal controls and strengthening tax collection and management.After empirical analysis,this paper draws the following conclusions:(1)Direct investment on tax havens will significantly increase the cost of equity capital;(2)Corporate direct investments on tax haven increases the financial risk and tax risk of enterprises,which further increases the cost of equity capital of enterprises;(3)In state-owned enterprises,it will not increase the cost,while in non-state-owned enterprises,it will significantly increase the cost of corporate equity capital;Direct investments in corporate tax havens has a long-term adverse effect on corporate equity capital.Good internal controls and strengthening tax collection and management can help reduce the adverse impact of corporate tax haven direct investment on equity capital cost.Based on this,this paper puts forward some suggestions from the government and enterprise aspects.At the national aspect:(1)improving the tax haven direct investment supervision system and tax legal system;(2)Strengthening tax supervision and punishment for tax violations.At the enterprise aspect:(1)the enterprise should enhance the tax haven direct investment risk awareness and tax planning risk awareness;(2)Improving the internal control and rules of the enterprise,scientific and reasonable overseas investment.