An Investigation into the Relationship between Tax Avoidance and Cost of Debt and the Effect of Institutional Ownership on this Relationship

The primary goal of this study are to identify whether there is any relationship between corporate tax avoidance and cost of debt for companies at Tehran Stock Exchange (TSE) for the period of 2002-2011، and whether the level of institutional ownership moderates this relationship. For testing the hypotheses of this research، regression method and Generalized Least Squares (GLS) technique were used for panel data. The results of study indicate there is a negative relation between corporate tax avoidance and cost of debt. This negative relation indicates that tax-favored effect of corporate tax avoidance can serve as a debt for firms; hence tax avoidance serves as a substitute for the use of debt. Additionally، the evidence suggests that there is no significant effect of institutional ownership on the relation between corporate tax avoidance and cost of debt.