Does IRS Monitoring Matter for the Cost of Bank Loans?

Theodora Bermpei (), Antonios Nikolaos Kalyvas () and Simon Wolfe ()
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Theodora Bermpei: University of Essex
Antonios Nikolaos Kalyvas: University of Kent
Simon Wolfe: University of Southampton

Journal of Financial Services Research, 2024, vol. 65, issue 2, No 2, 153-188

Abstract: Abstract We show that IRS monitoring exerts a significantly negative effect on the cost of syndicated loans. A one standard deviation increase in the probability of an IRS audit decreases loan spreads by around nine basis points. We also find that this effect is stronger for borrowers with better lending relationships and credible access to public markets. These results indicate that IRS monitoring could increase the bargaining power of borrowers and restrain banks from extracting informational rents from their lending relationships. Thus, they provide a novel insight into how IRS monitoring could lower the cost of financing from the banking system.

Keywords: Syndicated loans; IRS monitoring; Information asymmetry; Lending relationships (search for similar items in EconPapers)
JEL-codes: G21 H25 H26 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10693-023-00403-9

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