The role of creditor protection in lending and tax avoidance

Year: 2022

Type: Journal Publication

Journal: Journal of Financial and Quantitative Analysis

Abstract

We examine how creditor rights affect the trade-off between non-debt and debt tax shields. Using four bankruptcy reforms and a panel of private and public firms from Italy, we show that laws empowering creditors reduce tax avoidance and increase debt financing, consistent with firms substituting non-debt tax shields with debt tax shields. We corroborate the validity of our findings using a panel of public firms across 33 countries. Additionally, we document that the impact of creditor protection laws is mitigated by tax system characteristics, which significantly reduce the incentives to substitute tax avoidance with debt.

Publication Information

TRR 266 researchers

Martin Jacob IESE Business School

External researchers

Antonio De Vito

Start Page

End Page

Volume Number

forthcoming

DOI

DOI Link

To cite this article

De Vito, A., & Jacob, M. (2022). The role of creditor protection in lending and tax avoidance. Journal of Financial and Quantitative Analysis, forthcoming. https://dx.doi.org/10.2139/ssrn.3727201

Related Projects

B01

Investment Effects of Multidimensional Taxation

+ 5

Participating Institutions

TRR 266‘s main locations are Paderborn University (Coordinating University), HU Berlin, and University of Mannheim. All three locations have been centers for accounting and tax research for many years. They are joined by researchers from LMU Munich, Frankfurt School of Finance and Management, Goethe University Frankfurt, University of Cologne and Leibniz University Hannover who share the same research agenda.