Journal of Financial Economics Vol. 113 No. 1 2014

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

Iftekhar Hasan^1,2; Chun Keung Hoi³; Qiang Wu^4,5; Hao Zhang³

¹ Fordham University · ² Bank of Finland · ³ Rochester Institute of Technology · ⁴ Hong Kong Polytechnic University · ⁵ Rensselaer Polytechnic Institute

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.

DOI

10.1016/j.jfineco.2014.03.004

Volume

113

Issue

1

Pages

109-130

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓