Beauty is in the eye of the beholder: The effect of corporate tax avoidance on the cost of bank loans

Iftekhar Hasan, Hoi, Chun Keung (Stan), Qiang Wu () and Hao Zhang

Journal of Financial Economics, 2014, vol. 113, issue 1, 109-130

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.

Keywords: Tax avoidance; Cost of bank loans; Information risk; Agency risk; FIN 48 (search for similar items in EconPapers)
JEL-codes: G21 G32 H26 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (149)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:113:y:2014:i:1:p:109-130

DOI: 10.1016/j.jfineco.2014.03.004

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