Journal of Financial Intermediation Vol. 30 2017
How do financial institutions react to a tax increase?
Abstract
This paper empirically highlights the role and significance of taxes for the capital structure decisions of banks. Using a difference-in-differences methodology, I show that an increase in the local U.S. state corporate tax rate affects the banks’ financing as well as their operating choices. Better-capitalized banks raise their long-term non-depository debt and thus benefit from an enlarged tax shield. Worse-capitalized banks instead reduce their lending because a higher tax rate increases the tax-adjusted cost of funding, which renders the marginal loan unprofitable.
- DOI
- 10.1016/j.jfi.2016.08.002
- Volume
- 30
- Pages
- 86-106
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref