Search results

The purpose of this study is to examine the effects of non-commercial banking institutions’ simultaneous holdings of equity and debt in the same firm (hereafter, dual holdings) on financial covenants in debt contracts.

By using the DealScan database, this study tests how dual holdings affect the number of financial debt covenants.

This study finds that the presence of dual holders is positively associated with the number of financial covenants in general, suggesting that the use of financial covenants is reduced when the interests between shareholders and creditors are aligned. This study also finds that dual holder participation does not reduce the number of financial covenants in leveraged loans as much as it does in investment-grade loans. Additionally, when a dual holder has a large portion of equity stakes and loan claims in a borrowing firm, the effect of dual holdings on financial covenants is more pronounced.

This study contributes to debt market research by showing that dual holder participation reduces the number of financial covenants in debt contracts.

This study aims to examine how the effect of corporate tax avoidance on the cost of debt has changed in the period 1993–2017. Although it is known that tax avoidance has significantly increased during this period (Dyreng et al., 2017), little evidence exists on how this change alters the effect of tax avoidance on the cost of debt. This study investigates how changes in tax avoidance modify the association between tax avoidance and the cost of debt.

By using a comprehensive sample of 15,825 loan facilities issued to US public firms in the period 1993–2017, this study tests the time-series changes in the association between tax avoidance and the cost of debt.

This study finds that a positive association between tax avoidance and the cost of debt has been declined over the past 25 years. Accordingly, tax avoidance in general no longer increases the loan spread after the enactment of domestic production activities deduction. However, the risker end of tax avoidance does still increase the loan spread.

This study spotlights the time-series changes in the effect of corporate tax avoidance on the cost of debt, showing how lenders perception on corporate tax avoidance has altered in accordance with changes in corporate tax practice.