Do Creditors Influence Corporate Tax Planning? Evidence from Loan Covenants
47 Pages Posted: 19 Jan 2017 Last revised: 8 Feb 2019
Date Written: February 6, 2019
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.
Keywords: covenant violation, tax avoidance
JEL Classification: G21, G30
Suggested Citation: Suggested Citation