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

See all articles by Swarnava Biswas

Swarnava Biswas

University of Bristol

Bálint L. Horváth

University of Bristol

Wei Zhai

Central University of Finance and Economics (CUFE)

Date Written: July 18, 2019

Abstract

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

Biswas, Swarnava and Horváth, Bálint L. and Zhai, Wei, Eliminating the Tax Shield Through Allowance for Corporate Equity: Cross-Border Credit Supply Effects (July 18, 2019). 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, Available at SSRN: https://ssrn.com/abstract=3271366 or http://dx.doi.org/10.2139/ssrn.3271366

Swarnava Biswas

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Bálint L. Horváth (Contact Author)

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Wei Zhai

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

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