Eliminating the Tax Shield Through Allowance for Corporate Equity: Cross-Border Credit Supply Effects
BISWAS, S., HORVÁTH, B.L. and ZHAI, W. (2021), Eliminating the Tax Shield through Allowance for Corporate Equity: Cross-Border Credit Supply Effects. Journal of Money, Credit and Banking. https://doi.org/10.1111/jmcb.12877
Posted: 15 Nov 2018 Last revised: 30 Nov 2021
Date Written: July 18, 2019
This paper studies how the elimination of the corporate tax bias on bank leverage affects banks' credit provisioning using a quasi-natural experiment, the introduction of an allowance for corporate equity (ACE) in Belgium. We find that affected banks increased their contribution within cross-border syndicated loan facilities relative to other foreign banks, and that this effect was stronger for relatively safe borrowers. We estimate that Belgian bank-led loans had on average 20–50 basis points lower spreads when ACE was in effect. Finally, our results suggest a relatively large, positive credit supply effect domestically.
Keywords: Cross-Border Lending, Syndicated Loans, Credit Supply, Allowance for Corporate Equity, Bank Taxation
JEL Classification: G21, G28, E51, H25
Suggested Citation: Suggested Citation