The real effects of bank taxation : evidence for corporate financing and investment
Abstract
This paper examines how bank taxation affects the financing decisions and investment activities of corporates. Exploiting exogenous tax variation at the bank level, we show that taxing banks’ gross profits leads to higher bank leverage, and results in lower bank risk and credit supply. The contraction in credit supply has implications for corporate debt financing and investment activity. Corporates more exposed to banks subject to gross profit tax exhibit lower leverage and rely less on bank debt. Corporates partly offset lower bank financing by switching to bond financing. The cost of bond financing increases with corporate exposure to the tax. A greater exposure also impacts negatively on corporate investment activity. Overall, our results highlight the importance of bank taxation for corporate financing and investment decisions.
Citation
Sobiech , A L , Chronopoulos , D & Wilson , J O S 2021 , ' The real effects of bank taxation : evidence for corporate financing and investment ' , Journal of Corporate Finance , vol. In press , 101989 . https://doi.org/10.1016/j.jcorpfin.2021.101989
Publication
Journal of Corporate Finance
Status
Peer reviewed
ISSN
0929-1199Type
Journal article
Rights
Copyright © 2021 Elsevier B.V. All rights reserved. This work has been made available online in accordance with publisher policies or with permission. Permission for further reuse of this content should be sought from the publisher or the rights holder. This is the author created accepted manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at https://doi.org/10.1016/j.jcorpfin.2021.101989
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