Transparency, Tax Pressure and Access to Finance
Indiana University Bloomington - Department of Finance
University of Naples Federico II - Department of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Center for Studies in Economics and Finance - CSEF
University of Naples Federico II - Department of Economics and Statistics; Einaudi Institute for Economics and Finance (EIEF); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
Bocconi University - Department of Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)
April 4, 2012
ECGI - Finance Working Paper No. 332/2012
AFA 2012 Chicago Meetings Paper
In choosing transparency, firms must trade off the benefits from better access to finance against the cost of a greater tax burden. We study this trade-off in a model with distortionary taxes and endogenous rationing of external finance. The evidence from two different data sets, one formed only by listed firms and another mainly by unlisted firms, bears out the model’s predictions: First, investment and access to finance are positively correlated with accounting transparency, especially in firms that depend more on external finance, and are negatively correlated with tax pressure. Second, transparency is negatively correlated with tax pressure, particularly in sectors where firms are less dependent on external finance, and is positively correlated with tax enforcement. Finally, financial development enhances the positive effect of transparency on investment, and encourages transparency by financially dependent firms.
Number of Pages in PDF File: 61
Keywords: transparency, tax pressure, investment, access to finance
JEL Classification: G31, G32, G38, H25, H26, M40working papers series
Date posted: March 18, 2011 ; Last revised: May 2, 2012
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