Beauty is in the eye of the beholder: The effect of corporate tax avoidance on the cost of bank loans |
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Authors: | Iftekhar Hasan Chun Keung Hoi Qiang Wu Hao Zhang |
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Institution: | 1. Graduate School of Business, Fordham University, USA;2. Bank of Finland, Finland;3. Saunders College of Business, Rochester Institute of Technology, USA;4. Lally School of Management, Rensselaer Polytechnic Institute, USA |
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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. |
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Keywords: | G21 G32 H26 |
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