Dual holders and corporate tax policies

Date

2021-05

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Abstract

In this study, I examine how creditors who also are equity holders of the same firm, referred to as dual holders, influence corporate tax policies. Shareholders enjoy the additional cash flows generated from tax savings, whereas creditors are fixed claimants and are more concerned with the risks associated with tax avoidance. I predict that dual holders consider the interests of creditors while simultaneously wielding the influence of shareholders to encourage firms to achieve a more preferred level of tax avoidance and reduce the associated tax risk. Consistent with my predictions, I find that firms with dual holders report actual tax avoidance closer to the preferred level than firms without dual holders. In addition, I demonstrate that the presence of dual holders is associated with lower tax risk, and this effect is more pronounced when the dual holder is a lead lender of the syndicated loan, a dedicated investor of the firm, contributes more to the syndicated loan, or when the dual-holding firm’s default risk is high.


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Keywords

Dual Holders, Tax Avoidance, Tax Risk

Citation