Corporate Tax Enforcement Externalities and the Banking Sector

Gallemore, John; Jacob, Martin

doi:10.1111/1475-679x.12334

Cited by 45 publications

(2 citation statements)

References 94 publications

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“…Guedhami and Pittman found that tax administration and enforcement can induce firms to improve the quality of accounting information, increase information transparency, and reduce information asymmetry, thereby alleviating corporate financing constraints [10]. Gallemore and Jacob also argued that tax administration could improve the information environment of banks and SMEs, enabling banks to make more rational lending decisions and thus increase the probability of receiving credit support for SMEs [29]. Ye et al found that tax administration via big data can significantly improve the robustness of corporate accounting by increasing the transparency of corporate information, and this effect is more pronounced in firms with weaker external monitoring and tax collection [17].…”

Section: Literature Review and Research Hypothesismentioning

confidence: 99%

Impact of Tax Administration on ESG Performance—A Quasi-Natural Experiment Based on China’s Golden Tax Project III

Ling

Zhang

2023

Sustainability

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With the growing importance of sustainable development, ESG is receiving attention from governments, firms, and investors. This study uses the reform of China’s tax inspection system—Golden Tax Project III—as a quasi-natural experiment to examine the impact of the enhanced tax administration on firms’ ESG performance with a sample of Chinese A-share listed companies from 2008 to 2020. The findings, which were identified via a time-varying difference-in-differences (time-varying DID) approach, indicate that Golden Tax Project III significantly reduces firms’ ESG performance and has the most significant impact on the environmental dimension and the minor impact on the social dimension. The negative impact of Golden Tax Project III on ESG performance is more substantial among non-state firms and firms in regions with higher levels of marketization than other firms. The mechanism test shows that Golden Tax Project III negatively affects ESG performance by increasing the tax burden on firms. The moderating effect test shows that tax incentives can effectively mitigate the dampening effect of strengthened tax administration on ESG performance. This study enriches the literature on the factors influencing firms’ ESG performance to a certain extent; it helps the government use taxation policies to inspire firms to improve ESG performance, contributing to sustainable development.

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Section: Literature Review and Research Hypothesismentioning

confidence: 99%

Impact of Tax Administration on ESG Performance—A Quasi-Natural Experiment Based on China’s Golden Tax Project III

Ling

Zhang

2023

Sustainability

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“…Recent research shows that besides causing costs, tax audits may also have positive effects for firms. Specifically,Guedhami and Pittman (2008) show that a higher audit probability reduces the costs of debt financing, andGallemore and Jacob (2020) show that a higher audit probability increases commercial bank lending to firms. In general, however, it can be assumed that the costs of audits exceed potential benefits.4 Firms worldwide spend approximately 25 hours complying with the requirements of an auditor and spend almost 11 weeks going through several rounds of interactions with the auditor according to The World Bank (2017).…”

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confidence: 99%

Threshold-dependent tax enforcement and the size distribution of firms: evidence from Germany

Klimsa

Ullmann

2022

Int Tax Public Finance

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This paper investigates firms’ responses to threshold-dependent intensity of tax enforcement. We use administrative tax return data over the entire population of German firms and exploit industry variation in firm size thresholds applied by the tax administration. In our setting, each threshold marks a considerable spike in audit intensity and hence should create strong incentives to bunch below the threshold. However, we find no such effect in our large sample analysis. We attribute this empirical observation to optimization costs, particularly to the costs associated with the operational implementation of size management and to information costs. Our paper adds to the emerging field of studies on potential distortions created by threshold-dependent firm regulation. The findings are also relevant for policymakers, as they suggest that the specific design of threshold-dependent policies might allow governments to increase the efficiency of tax audits without distorting the firm size distribution.

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Does IRS Monitoring Matter for the Cost of Bank Loans?

2023

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We show that IRS monitoring exerts a significantly negative effect on the cost of syndicated loans. A one standard deviation increase in the probability of an IRS audit decreases loan spreads by around nine basis points. We also find that this effect is stronger for borrowers with better lending relationships and credible access to public markets. These results indicate that IRS monitoring could increase the bargaining power of borrowers and restrain banks from extracting informational rents from their lending relationships. Thus, they provide a novel insight into how IRS monitoring could lower the cost of financing from the banking system.

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Corporate Tax Enforcement Externalities and the Banking Sector

Cited by 45 publications

References 94 publications

Impact of Tax Administration on ESG Performance—A Quasi-Natural Experiment Based on China’s Golden Tax Project III

Impact of Tax Administration on ESG Performance—A Quasi-Natural Experiment Based on China’s Golden Tax Project III

Threshold-dependent tax enforcement and the size distribution of firms: evidence from Germany

Does IRS Monitoring Matter for the Cost of Bank Loans?

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