Banking Deregulation and Corporate Tax Avoidance

Abstract

We investigate whether tax avoidance substitutes for external financing. We exploit interstate banking deregulation as a quasi-external shock to examine whether firms engage in less tax avoidance after banking deregulation, because of cheaper and easier access to credit from banks. We find no empirical evidence to support this substitutive relation, even for firms with higher financial constraints or firms with higher external financing dependence.

Keywords: Tax avoidance, interstate banking deregulation, external financing