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Transparency, Tax Pressure and Access to Finance

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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, transparency is negatively correlated with tax pressure, particularly in sectors where firms are less dependent on external finance. Second, financial development enhances the positive effect of transparency on investment, and encourages transparency by financially dependent firms. Finally, investment and access to finance are positively correlated with firms’ transparency, especially in firms that depend more on external finance, and are negatively correlated with tax pressure. JEL Classification: G31, G32, G38, H25, H26, M40.

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  • Andrew Ellul & Tullio Jappelli & Marco Pagano & Fausto Panunzi, 2012. "Transparency, Tax Pressure and Access to Finance," CSEF Working Papers 310, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 04 Feb 2015.
  • Handle: RePEc:sef:csefwp:310
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    3. Capasso, Salvatore & Jappelli, Tullio, 2013. "Financial development and the underground economy," Journal of Development Economics, Elsevier, vol. 101(C), pages 167-178.
    4. 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.
    5. 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.
    6. 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.
    7. 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).
    8. 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.
    9. Tao Bai & Stephen Chen & Xiao He, 2019. "How Home-Country Political Connections Influence the Internationalization of Service Firms," Management International Review, Springer, vol. 59(4), pages 541-560, August.
    10. 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.
    11. Kodjo Adandohoin & Jean-Francois Brun, 2021. "The Role of Income and Property Taxes in Tax Transition and the Mediating Effect of Financial Development," Post-Print hal-03470540, HAL.
    12. Hoang, Daniel & Ruckes, Martin, 2017. "Corporate risk management, product market competition, and disclosure," Journal of Financial Intermediation, Elsevier, vol. 30(C), pages 107-121.
    13. 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.
    14. Aguima Aime Bernard Lompo, 2024. "How Does Financial Sector Development Improve Tax Revenue Mobilization for Developing Countries?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 66(1), pages 91-125, March.
    15. Pappadá, Francesco & Zylberberg, Yanos, 2017. "Austerity and tax compliance," European Economic Review, Elsevier, vol. 100(C), pages 506-524.
    16. Gilbert Mbaraa & Ryszard Kokoszczyński, 2018. "Corporate governance, tax evasion and business cycles," Working Papers 2018-10, Faculty of Economic Sciences, University of Warsaw.
    17. Kodjo Adandohoin & Jean-Francois Brun, 2020. "Are incomes and property taxes effective instruments for tax transition?," Working Papers hal-03053683, HAL.
    18. Yan Yu, 2022. "Analyst Earnings Forecast Optimism during the COVID-19 Pandemic: Evidence from China," Sustainability, MDPI, vol. 14(19), pages 1-16, October.
    19. 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).
    20. Liangliang Jiang & Ross Levine & Chen Lin & Wensi Xie, 2022. "Deposit Supply and Bank Transparency," Management Science, INFORMS, vol. 68(5), pages 3834-3855, May.
    21. Floropoulos, Stylianos & Tsipouridou, Maria & Spathis, Charalambos, 2024. "Book-tax conformity and earnings management: A research agenda," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 54(C).
    22. 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).
    23. 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).
    24. 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.
    25. 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.

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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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