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Transparency, tax pressure and access to finance

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  • Ellul, Andrew
  • Jappelli, Tullio
  • Pagano, Marco
  • Panunzi, Fausto

Abstract

In choosing transparency, firms must trade off the benefits from better access to finance against the cost of a greater tax burden. We study this trade-off in a model with distortionary taxes and endogenous rationing of external finance. The evidence from two different data sets, one formed only by listed firms and another mainly by unlisted firms, bears out the model's predictions: First, investment and access to finance are positively correlated with accounting transparency, especially in firms that depend more on external finance, and are negatively correlated with tax pressure. Second, transparency is negatively correlated with tax pressure, particularly in sectors where firms are less dependent on external finance, and is positively correlated with tax enforcement. Finally, financial development enhances the positive effect of transparency on investment, and encourages transparency by financially dependent firms.

Suggested Citation

  • Ellul, Andrew & Jappelli, Tullio & Pagano, Marco & Panunzi, Fausto, 2012. "Transparency, tax pressure and access to finance," LSE Research Online Documents on Economics 119048, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:119048
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    Cited by:

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    4. Egger, Peter H. & Erhardt, Katharina & Keuschnigg, Christian, 2020. "Heterogeneous tax sensitivity of firm-level investments," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 512-538.
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    6. Kodjo Adandohoin & Jean-Francois Brun, 2020. "Are incomes and property taxes effective instruments for tax transition?," Working Papers hal-03053683, HAL.
    7. Marco Di Maggio & Marco Pagano, 2018. "Financial Disclosure and Market Transparency with Costly Information Processing [Bargaining with incomplete information]," Review of Finance, European Finance Association, vol. 22(1), pages 117-153.
    8. Mohamed A. Elbannan & Omar Farooq, 2020. "Do more financing obstacles trigger tax avoidance behavior? Evidence from Indian SMEs," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 44(1), pages 161-178, January.
    9. Li, Zhuo & Wen, Fenghua & Huang, Zhijian James, 2023. "Asymmetric response to earnings news across different sentiment states: The role of cognitive dissonance," Journal of Corporate Finance, Elsevier, vol. 78(C).
    10. Gilbert Mbaraa & Ryszard Kokoszczyński, 2018. "Corporate governance, tax evasion and business cycles," Working Papers 2018-10, Faculty of Economic Sciences, University of Warsaw.
    11. James, Hui Liang & Ngo, Thanh & Wang, Hongxia, 2021. "Independent director tenure and corporate transparency," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    12. Imamoglu, Hatice, 2017. "Estimating the roles of financial sector development and international trade openness in underground economies: Evidence from the European Union," Economics Discussion Papers 2017-50, Kiel Institute for the World Economy (IfW Kiel).
    13. Yuming Zhang & Han Liu & Shuang Li & Chao Xing, 2023. "The Digital Transformation Effect in Trade Credit Uptake: The Buyer Perspective," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 59(7), pages 2056-2078, May.
    14. Berdiev, Aziz N. & Saunoris, James W., 2016. "Financial development and the shadow economy: A panel VAR analysis," Economic Modelling, Elsevier, vol. 57(C), pages 197-207.
    15. Canh, Nguyen Phuc & Thanh, Su Dinh, 2020. "Financial development and the shadow economy: A multi-dimensional analysis," Economic Analysis and Policy, Elsevier, vol. 67(C), pages 37-54.
    16. Yan Yu, 2022. "Analyst Earnings Forecast Optimism during the COVID-19 Pandemic: Evidence from China," Sustainability, MDPI, vol. 14(19), pages 1-16, October.
    17. Liangliang Jiang & Ross Levine & Chen Lin & Wensi Xie, 2022. "Deposit Supply and Bank Transparency," Management Science, INFORMS, vol. 68(5), pages 3834-3855, May.
    18. Imamoglu, Hatice, 2021. "The role of financial development on the underground economy in regards to Europe’s 2020 strategy," Economic Systems, Elsevier, vol. 45(2).
    19. Chletsos, Michael & Sintos, Andreas, 2021. "Hide and seek: IMF intervention and the shadow economy," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 292-319.
    20. Folorunsho M. Ajide, 2021. "Shadow economy in Africa: how relevant is financial inclusion?," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 29(3), pages 297-316, April.
    21. Andrey L. Anisimov, 2018. "Economic Model of Tax Authorities’ Costs Optimisation and Tax Revenue Receipt," Journal of New Economy, Ural State University of Economics, vol. 19(5), pages 59-71, October.
    22. Hoang, Daniel & Ruckes, Martin, 2017. "Corporate risk management, product market competition, and disclosure," Journal of Financial Intermediation, Elsevier, vol. 30(C), pages 107-121.
    23. Pappadá, Francesco & Zylberberg, Yanos, 2017. "Austerity and tax compliance," European Economic Review, Elsevier, vol. 100(C), pages 506-524.

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    More about this item

    Keywords

    transparency; tax pressure; investment; access to finance;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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