How do financial institutions react to a tax increase?

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

Resumé

This paper empirically highlights the role and significance of taxes for the capital structure decisions of banks. Using a difference-in-differences methodology, I show that an increase in the local U.S. state corporate tax rate affects the banks’ financing as well as their operating choices. Better-capitalized banks raise their long-term non-depository debt and thus benefit from an enlarged tax shield. Worse-capitalized banks instead reduce their lending because a higher tax rate increases the tax-adjusted cost of funding, which renders the marginal loan unprofitable.

OriginalsprogEngelsk
TidsskriftJournal of Financial Intermediation
Vol/bind30
Sider (fra-til)86-106
ISSN1042-9573
DOI
StatusUdgivet - apr. 2017

Fingeraftryk

Financial institutions
Tax
Capital structure
Debt
Tax shield
Funding
Corporate tax rates
Costs
Bank financing
Loans
Difference-in-differences
U.S. States
Tax rate
Lending
Methodology

Citer dette

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How do financial institutions react to a tax increase? / Schandlbauer, Alexander.

I: Journal of Financial Intermediation, Bind 30, 04.2017, s. 86-106.

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

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