Abstract
We find that firms with greater tax avoidance incur higher spreads when obtaining bank loans. This finding is robust in a battery of sensitivity analyses and in two quasi-experimental settings including the implementation of Financial Accounting Standards Board Interpretation No. 48 and the revelation of past tax sheltering activity. Firms with greater tax avoidance also incur more stringent nonprice loan terms, incur higher at-issue bond spreads, and prefer bank loans over public bonds when obtaining debt financing. Overall, these findings indicate that banks perceive tax avoidance as engendering significant risks.
Original language | English |
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Pages (from-to) | 109-130 |
Number of pages | 22 |
Journal | Journal of Financial Economics |
Volume | 113 |
Issue number | 1 |
DOIs | |
Publication status | Published - Jul 2014 |
Externally published | Yes |
Keywords
- Agency risk
- Cost of bank loans
- FIN 48
- Information risk
- Tax avoidance
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
- Strategy and Management