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Do Creditors Influence Corporate Tax Planning? Evidence from Loan Covenants

Kirsten Cook
Tao Ma
Yijia (Eddie) Zhao

Advances in Taxation

ISBN: 978-1-83909-186-5, eISBN: 978-1-83909-185-8

ISSN: 1058-7497

Publication date: 19 October 2020

Abstract

This study examines how creditor interventions after debt covenant violations affect corporate tax avoidance. Using a regression discontinuity design, we find that creditor interventions increase borrowers' tax avoidance. This effect is concentrated among firms with weaker shareholder governance before creditor interventions and among those with less bargaining power during subsequent debt renegotiations. Our results indicate that creditors play an active role in shaping corporate tax policy outside of bankruptcy.

Keywords

Acknowledgements

Acknowledgments

We thank Ting Chen, Yongqiang Chu, James Donato, Andrew Ellul, Martin Jacob, Linda Meyers, Chi Wan, Teng Wang, Joanna Wu, Donghang Zhang, and the conference participants at the 2018 Financial Management Association (FMA) Annual Meeting for helpful comments/suggestions.

Citation

Cook, K., Ma, T. and Zhao, Y.(. (2020), "Do Creditors Influence Corporate Tax Planning? Evidence from Loan Covenants", Hasseldine, J. (Ed.) Advances in Taxation (Advances in Taxation, Vol. 27), Emerald Publishing Limited, pp. 1-42. https://doi.org/10.1108/S1058-749720200000027001

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Emerald Publishing Limited

Copyright © 2020 Emerald Publishing Limited

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