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Eliminating the Tax Shield through Allowance for Corporate Equity: Cross‐Border Credit Supply Effects

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  • SONNY BISWAS
  • BÁLINT L. HORVÁTH
  • WEI ZHAI

Abstract

This paper studies how the elimination of the corporate tax bias on bank leverage affects banks' credit provisioning using a quasi‐natural experiment, the introduction of an allowance for corporate equity (ACE) in Belgium. We find that affected banks increased their contribution within cross‐border syndicated loan facilities relative to other foreign banks, and that this effect was stronger for relatively safe borrowers. We estimate that Belgian bank‐led loans had on average 20–50 basis points lower spreads when ACE was in effect. Finally, our results suggest a relatively large, positive credit supply effect domestically.

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  • Sonny Biswas & Bálint L. Horváth & Wei Zhai, 2022. "Eliminating the Tax Shield through Allowance for Corporate Equity: Cross‐Border Credit Supply Effects," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(6), pages 1803-1837, September.
    • Handle: RePEc:wly:jmoncb:v:54:y:2022:i:6:p:1803-1837
    DOI: 10.1111/jmcb.12877
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    Cited by:

    1. Burietz, A. & Ongena, S. & Picault, M., 2023. "Taxing banks leverage and syndicated lending: A cross-country comparison," International Review of Law and Economics, Elsevier, vol. 73(C).

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