Tax Information Disclosure and Access to Debt Finance

Abstract

We examine whether corporate tax information disclosure affects firms’ access to debt finance, utilizing the disclosure of top-rated corporate taxpayers in China in 2015 as a quasi-natural experiment. We find that in the absence of formal credit ratings, the disclosure increases top-rated firms’ access to bank loans. Top-rated firms face lower demands for collateral and enjoy more diversified lender bases since the taxpayer rating disclosure. We demonstrate that the disclosure enhances top-rated firms' access to bank loans by reducing banks’ perceptions of firm risks related to tax uncertainty, signaling the degree of agency problems, and promoting information transparency. The top taxpayer rating’s positive impact on access to bank loans is also larger for firms facing weaker bank monitoring. Our study shows that tax information disclosure can influence firms’ access to external finance, which is particularly useful in developing countries where firms lack formal credit ratings.

Keywords: tax information disclosure, bank loans, tax uncertainty, Information transparency, Corporate Governance