The Role of Creditor Protection in Lending and Tax Avoidance

65 Pages Posted: 14 Jan 2021

See all articles by Antonio De Vito

Antonio De Vito

IE Business School - IE University

Martin Jacob

WHU - Otto Beisheim School of Management

Date Written: November 9, 2020

Abstract

We examine how creditor rights affect the trade-off between non-debt and debt tax shields. Using four bankruptcy reforms, a panel of private and public firms, and tax return data from Italy, we show that laws empowering creditors reduce tax avoidance and increase debt financing, consistent with firms substituting non-debt tax shields with debt tax shields. We corroborate the validity of our findings using a panel of public firms across 33 countries. We document that the impact of creditor protection laws is mitigated by tax system characteristics, which significantly reduce the incentives to substitute tax avoidance with debt.

Keywords: government policy and regulation, bankruptcy, debt, capital structure, tax avoidance

JEL Classification: G28; G32; G33; H26; K34; M41

Suggested Citation

De Vito, Antonio and Jacob, Martin, The Role of Creditor Protection in Lending and Tax Avoidance (November 9, 2020). Available at SSRN: https://ssrn.com/abstract=3727201 or http://dx.doi.org/10.2139/ssrn.3727201

Antonio De Vito

IE Business School - IE University ( email )

Calle Maria de Molina 12
Madrid, Madrid 28006
Spain

Martin Jacob (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
D-56179 Vallendar, 56179
Germany

HOME PAGE: http://www.whu.edu/steuer

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
72
Abstract Views
653
rank
380,477
PlumX Metrics