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.
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.
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/S1058-749720200000027001Download as .RIS
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