More and Safer Corporate Tax Planning: On the Benefits of Bank Control

50 Pages Posted: 18 Apr 2016 Last revised: 7 Jan 2021

See all articles by Yupeng Lin

Yupeng Lin

National University of Singapore

Xiangang Xin

City University of Hong Kong

Liandong Zhang

Singapore Management University - School of Accountancy

Zilong Zhang

Zhejiang University

Date Written: August 31, 2020

Abstract

Using a regression discontinuity design, this study shows that strengthened bank control rights triggered by loan covenant violations lead to an increase in cash tax savings and a reduction in tax risk. This effect is driven largely by firms with more severe shareholder–debtholder conflicts. Investigating the mechanisms involved, we find that firms appoint more tax-savvy directors on the board after covenant violations. Moreover, firms increase state tax planning activities, reduce offshore tax haven operations, and decrease outbound income shifting. Overall, our findings suggest that bank control rights can mitigate shareholder–debtholder conflict and improve tax planning efficiency.

Keywords: creditor control right, tax planning, tax risk, covenant violation, shareholder–debtholder conflict, contract incompleteness

JEL Classification: G21, G32, G34, H25, H26

Suggested Citation

Lin, Yupeng and Xin, Xiangang and Zhang, Liandong and Zhang, Zilong, More and Safer Corporate Tax Planning: On the Benefits of Bank Control (August 31, 2020). Singapore Management University School of Accountancy Research Paper No. 2021-124, Available at SSRN: https://ssrn.com/abstract=2766108 or http://dx.doi.org/10.2139/ssrn.2766108

Yupeng Lin

National University of Singapore ( email )

15 Kent ridge drive
Singapore
Singapore

HOME PAGE: http://sites.google.com/site/scottlinyupeng/

Xiangang Xin

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
Hong Kong

Liandong Zhang

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

HOME PAGE: http://accountancy.smu.edu.sg/faculty/profile/150531/Liandong-ZHANG

Zilong Zhang (Contact Author)

Zhejiang University ( email )

Yuhangtang Road 866
Hangzhou, Zhejiang 310058
China

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