2023
DOI: 10.1007/s10693-023-00403-9
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Does IRS Monitoring Matter for the Cost of Bank Loans?

Abstract: 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… Show more

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