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

By Iftekhar Hasan, Chun Keung Hoi, Qiang Wu, Hao Zhang. Journal of Financial Economics, 2014

609 citations recorded by the source corpus.

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.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/91e9b1d2dbe4da68141f34fc3bcf7a7f6a40b489

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

In Economics and Econometrics

Citations in the corpus

The effect of corporate tax avoidance on the cost of equity (2013, methodology): “The results in Hasan et al. (2014) and Shevlin et al. (2013) are consistent with debt holders being exposed to the risks of tax avoidance but not sharing in the corresponding rewards from tax savings.”
On the Value of Corporate Social Responsibility Disclosure: An Empirical Investigation of Corporate Bond Issues in China (2018, background): “As suggested by Bharath et al. (2008) and Hasan et al. (2014), we investigate whether firm’s CSR disclosure quality has experienced significant changes two or three years prior to bond initiations.”
Corporate Social Responsibility, Institutional Environments, and Tax Avoidance: Evidence from a Subnational Comparison in China (2017, background): “For example, it affects tax avoidance (Atwood et al., 2012), perceptions of the importance of corporate ethics and tax compliance (Demirbag, Frecknall-Hughes, Glaister, & Tatoglu, 2013; Riahi-Belkaoui, 2004; Shafer, Fukukawa, & Lee, 2007; Snell & Tseng, 2002), and attitudes toward CSR (Muller & Kolk”
Are Female CFOs Less Tax Aggressive? Evidence from Tax Aggressiveness (2014, result): “These values are similar to those reported in Kim et al. (2011), Rego and Wilson (2012), and Hasan et al. (2014).”
Is Tax Avoidance Related to Firm Risk (2017, background): “All variables are defined in Appendix A. 13 Badertscher et al. (2013), Goh, Lee, Lim, and Shevlin (2013), Goh, Lim, Shevlin, and Zang (2013), Hasan et al. (2014), Hutchens and Rego (2015), Kubick et al. (2014), and Rego and Wilson (2012) also use this as a measure of risky tax avoidance.”
Social Capital and Debt Contracting: Evidence from Bank Loans and Public Bonds (2017, positive): “Additionally, Graham et al. (2008) and Hasan et al. (2014) ﬁnd corroborating evidence banks to impose more stringent collateral and covenant requirements when lending to ﬁrms with greater risks.”
Corporate Political Connections and Tax Aggressiveness (2013, positive): “Aggressive tax strategies can increase organizational complexity and reduce financial transparency, leading to higher financing costs (e.g., Balakrishnan et al. 2013; Hasan et al. 2014).”