Profit Shifting and Firm Credit

64 Pages Posted: 31 Aug 2023

See all articles by Fotis Delis

Fotis Delis

European Commission, Joint Research Centre

Manthos D. Delis

Audencia Business School

Sotirios Kokas

University of Essex - Essex Business School

Luc Laeven

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

Steven Ongena

University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)

Date Written: August 29, 2023

Abstract

Profit shifting by multinational enterprises (MNEs) generates earnings but also carries risks. We examine how banks perceive this tradeoff in their credit decisions, mainly credit costs. Using novel profit shifting estimates for each MNE-year, we show that banks, on average, give favorable credit spreads and larger loan amounts to profit-shifting MNEs. This is in stark contrast to other tax evasion practices that yield the opposite results. However, the introduction of OECD’s Base Erosion and Profit Shifting (BEPS) introduced significant risk to profit-shifting, yielding increasing credit spreads and lowering loan amounts, especially where banks are less able to collect information.

Keywords: Corporate taxes; Profit shifting; Bank credit; Loan Spreads; Taxation policy

JEL Classification: G21; H25; H26; F23; F42

Suggested Citation

Delis, Fotis and Delis, Manthos D. and Kokas, Sotirios and Laeven, Luc A. and Ongena, Steven R. G., Profit Shifting and Firm Credit (August 29, 2023). Swiss Finance Institute Research Paper No. 23-70, Available at SSRN: https://ssrn.com/abstract=4557657 or http://dx.doi.org/10.2139/ssrn.4557657

Fotis Delis

European Commission, Joint Research Centre ( email )

Seville
Spain

Manthos D. Delis

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

Sotirios Kokas

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Luc A. Laeven

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Steven R. G. Ongena (Contact Author)

University of Zurich - Department Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

NTNU Business School ( email )

Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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