No. 74: The role of creditor protection in lending and tax avoidance

Year: 2022

Type: Working Paper

Abstract

We examine how creditor rights affect the trade-off between non-debt and debt tax shields. Using four bankruptcy reforms, a panel of private and public firms, and tax return data 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. We further 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

DOI

DOI Link

To cite this article

De Vito, A., & Jacob, M. (2022). The role of creditor protection in lending and tax avoidance. TRR 266 Accounting for Transparency Working Paper Series No. 74. https://dx.doi.org/10.2139/ssrn.4030511

Related Projects

B01

Investment Effects of Multidimensional Taxation

+ 4

+ 1

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.