Research Discussion Papers, Bank of Finland
Beauty is in the eye of the beholder: The effect of corporate tax avoidance on the cost of bank loans
(), Chun-Keung (Stan) Hoi, Qiang Wu and Hao Zhang
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 non-price 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.
Keywords: tax avoidance; cost of bank loans; information risk; agency risk; audit risk; FIN 48; (follow links to similar papers)
JEL-Codes: G21; H26; (follow links to similar papers)
67 pages, January 15, 2014
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- This paper is published as:
Hasan, Iftekhar, Chun-Keung (Stan) Hoi, Qiang Wu and Hao Zhang, (2014), 'Beauty is in the eye of the beholder: The effect of corporate tax avoidance on the cost of bank loans', Journal of Financial Economics, Vol. 113, July, No. 1, pages 109-130
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