The Impact of Financial Reporting Opacity on Tax Avoidance and Cost of Debt

[Purpose] The purpose of this study is to analyze the impact of tax avoidance on corporate cost of debt and to derive the mediating effect of financial reporting opacity between tax avoidance and cost of debt. [Methodology] The analysis targets non－financial companies with a settlement month of December, and a total of 11,568 company/year data from 2010 to 2019 were used as samples for the study. The empirical analysis method of the correlation between tax avoidance and cost of debt verified the stability through technical statistics and correlation analysis, and then identified the causal relationship of Hypothesis 1 that the higher the level of tax avoidance, the higher the cost of debt. In addition, the Sobel Test was conducted to find out Hypothesis 2 that financial reporting opacity mediates the relationship between tax avoidance and cost of debt. [Findings] This study highlights that tax avoidance increases debt financing costs directly and indirectly through financial reporting opacity, with industry－specific variations, emphasizing the need to consider both factors in corporate debt financing analyses. [Implications] This study reveals that tax avoidance increases corporate debt financing costs and financial information opacity, recommending future research to refine the analysis of corporate characteristics and expand control variables to fully understand its impact on corporate financial behavior.