Do creditor control rights impact corporate tax aggressiveness? Evidence from debt covenant violations

C. S.Agnes Cheng, Bill B. Francis, Zhi Li, Yinjie Shen, Qiang Wu

Research output: Journal article publicationJournal articleAcademic researchpeer-review

1 Citation (Scopus)

Abstract

We examine the effect of bank interventions on corporate tax aggressiveness via the lens of debt covenant violations. Using three identification strategies, we find that bank interventions have a negative effect on corporate tax aggressiveness. This effect is less pronounced for more financially constrained firms, firms with higher shareholder power and firms facing less powerful banks. Covenant-violating firms compensate their reduced tax aggressiveness by reducing other expenditures, including capital expenditures and cash acquisitions. Our results suggest that creditors perceive aggressive tax activities as risky investment opportunities.

Original languageEnglish
Pages (from-to)1084-1119
Number of pages36
JournalJournal of Business Finance and Accounting
Volume51
Issue number5-6
DOIs
Publication statusPublished - 1 May 2024

Keywords

  • covenant violations
  • creditor control rights
  • tax aggressiveness

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting (miscellaneous)
  • Finance

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