Tax avoidance and cost of debt: evidence from French listed firms

Purpose This study aims to empirically examine the relationship between tax avoidance, family ownership and debt costs in French listed companies. Design/methodology/approach Panel data regression analysis was conducted on a sample of 311 firms from 2009 to 2022 to explore the impact of tax avoidance on debt costs and the moderating role of family ownership. Findings The results reveal a significant negative correlation between tax avoidance and debt costs, indicating lower debt expenses for firms practicing tax avoidance, supporting the “tax saving effect.” Family ownership further enhances the reduction in debt costs in conjunction with tax avoidance, emphasizing the role of family-owned businesses in aligning with creditor interests. Conversely, firms engaging in both tax avoidance and earnings management experience higher debt costs, reflecting creditor disapproval. Research limitations/implications The research paper acknowledges several limitations and implications that should be considered. Firstly, the study is constrained by its focus on measuring only the cost of debt and tax evasion, neglecting other potential determinants such as governance mechanisms. Secondly, the sample selection process excluded certain companies, potentially limiting the generalizability of the findings. While necessary for the study’s scope, these exclusions may impact the broader applicability of the results. Practical implications This study offers valuable insights into the interplay of tax strategies, ownership structures and financial decisions in the French corporate landscape, providing implications for creditor perceptions and debt management strategies. Originality/value The research contributes to understanding how tax avoidance and family ownership influence debt costs in French listed companies, highlighting the complexities of financial decision-making in different ownership structures.