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Transparency, Tax Pressure and Access to Finance

Listed author(s):
  • Andrew Ellul
  • Tullio Jappelli
  • Marco Pagano
  • Fausto Panunzi

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.

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File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/dp705.pdf
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Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp705.

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Date of creation: Jun 2012
Handle: RePEc:fmg:fmgdps:dp705
Contact details of provider: Web page: http://www.lse.ac.uk/fmg/

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  1. Straub, Stéphane, 2005. "Informal sector: The credit market channel," Journal of Development Economics, Elsevier, vol. 78(2), pages 299-321, December.
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  8. Simeon Djankov & Tim Ganser & Caralee McLiesh & Rita Ramalho & Andrei Shleifer, 2010. "The Effect of Corporate Taxes on Investment and Entrepreneurship," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(3), pages 31-64, July.
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  15. repec:bla:joares:v:31:y:1993:i::p:183-223 is not listed on IDEAS
  16. repec:bla:joares:v:38:y:2000:i:1:p:1-21 is not listed on IDEAS
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