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Does IRS Monitoring Matter for the Cost of Bank Loans?

Author

Listed:
  • Theodora Bermpei

    (University of Essex)

  • Antonios Nikolaos Kalyvas

    (University of Kent
    University of Southampton)

  • Simon Wolfe

    (University of Southampton)

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 relationships. Thus, they provide a novel insight into how IRS monitoring could lower the cost of financing from the banking system.

Suggested Citation

  • Theodora Bermpei & Antonios Nikolaos Kalyvas & Simon Wolfe, 2024. "Does IRS Monitoring Matter for the Cost of Bank Loans?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 65(2), pages 153-188, June.
    • Handle: RePEc:kap:jfsres:v:65:y:2024:i:2:d:10.1007_s10693-023-00403-9
    DOI: 10.1007/s10693-023-00403-9
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    More about this item

    Keywords

    Syndicated loans; IRS monitoring; Information asymmetry; Lending relationships;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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