Profit Shifting and Firm Credit

Fotis Delis, Manthos D. Delis, Sotirios Kokas, Luc Laeven and Steven Ongena
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Fotis Delis: European Commission Joint Research Centre
Manthos D. Delis: Audencia Business School

No 23-70, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Profit shifting by multinational enterprises (MNEs) generates earnings but also carries risks. We examine how banks perceive this tradeoff in their credit decisions, mainly credit costs. Using novel profit shifting estimates for each MNE-year, we show that banks, on average, give favorable credit spreads and larger loan amounts to profit-shifting MNEs. This is in stark contrast to other tax evasion practices that yield the opposite results. However, the introduction of OECD’s Base Erosion and Profit Shifting (BEPS) introduced significant risk to profit-shifting, yielding increasing credit spreads and lowering loan amounts, especially where banks are less able to collect information.

Keywords: Corporate taxes; Profit shifting; Bank credit; Loan Spreads; Taxation policy (search for similar items in EconPapers)
JEL-codes: F23 F42 G21 H25 H26 (search for similar items in EconPapers)
Pages: 64 pages
Date: 2023-08
New Economics Papers: this item is included in nep-acc, nep-ban, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2370

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