Optimal investment and financing with a bank-tax-interaction

Biao Chen and Jinqiang Yang

Finance Research Letters, 2020, vol. 35, issue C

Abstract: In this paper, we study the optimal investment and financing decisions with private lending and a newly created bank-tax-interaction(BTI, henceforth) which the bank provides loan to small and micro enterprizes (SMEs, henceforth) based on theirs historical tax payment. In contrast to the case with pure private lending, we discover that the BTI can increase firms’ value, the tax revenue and accelerate investment, firms with more profitable growth opportunities and higher cost of private lending will benefit more from BTI financing. Furthermore, an increasing in the credit multiplier reduces the incentive for corporate tax evasion when the minimum degree of tax payment is higher.

Keywords: Bank-tax-interaction; Credit multiplier; Investment (search for similar items in EconPapers)
JEL-codes: G21 G32 G33 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:35:y:2020:i:c:s1544612319300728

DOI: 10.1016/j.frl.2019.08.030

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