Eliminating the tax shield through allowance for corporate equity: cross‐border credit supply effects

Biswas, S. ORCID: https://orcid.org/0000-0003-3124-5070, Horvath, B. L. and Zhai, W. (2022) Eliminating the tax shield through allowance for corporate equity: cross‐border credit supply effects. Journal of Money, Credit and Banking, 54 (6). pp. 1803-1837. ISSN 1538-4616 doi: 10.1111/jmcb.12877

Abstract/Summary

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.

Item Type	Article
URI	https://centaur.reading.ac.uk/id/eprint/123831
Identification Number/DOI	10.1111/jmcb.12877
Refereed	Yes
Divisions	No Reading authors. Back catalogue items Henley Business School > Finance and Accounting
Publisher	Wiley
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