Corporate tax avoidance and debt costs

Shevlin, T, Urcan, O and Vasvari, F (2019) Corporate tax avoidance and debt costs. Journal of the American Taxation Association. ISSN 0198-9073 (In Press)

Abstract

We use path analysis to investigate how corporate tax avoidance is priced in bond yields and bank loan spreads. We find that approximately one half of the total effect of tax avoidance on bond yields is explained through the negative effect of tax avoidance on future pre-tax cash flow levels and volatility and, to a lesser extent, lower information quality. The effects of these mediating variables are much less pronounced for bank loan spreads. The results of additional cross-sectional analyses indicate that, relative to bond investors, banks are able to reduce information asymmetry problems more effectively, given their access to firms’ private information and greater ability to monitor borrowers.

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Item Type: Article
Subject Areas: Accounting
Additional Information:

© 2019 Journal of the American Taxation Association

Subjects: D > Debts
C > Corporation taxes
Date Deposited: 07 Nov 2019 10:36
Last Modified: 13 Feb 2020 16:05
URI: http://lbsresearch.london.edu/id/eprint/1267
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