The effect of corporate taxation on bank transparency: Evidence from loan loss provisions

Kathleen Andries, John Gallemore and Martin Jacob

Journal of Accounting and Economics, 2017, vol. 63, issue 2, 307-328

Abstract: We examine how the corporate tax system, through its treatment of loan losses, affects bank financial reporting. Exploiting cross-country and intertemporal variation in income tax rates and loan loss provision deductibility, we find that loan loss provisions are increasing in the tax rate for countries that permit general provision tax deductibility. When general provisions are deductible, a 1 percentage point rate increase leads to a provision increase of 4.9% of the sample average. This effect is driven by the tax system's encouragement of timelier loan loss recognition, suggesting that corporate taxation is an important determinant of bank financial reporting transparency.

Keywords: Bank transparency; Bank regulation; Loan loss provisions; Corporate taxation (search for similar items in EconPapers)
JEL-codes: G21 G28 H25 M41 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:63:y:2017:i:2:p:307-328

DOI: 10.1016/j.jacceco.2017.03.004

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