Title: Corporate tax changes and the cost of credit
Authors: Yota Deli - UCD (Ireland) [presenting]
Abstract: How do changes in corporate taxation affect the cost of credit? Using more than 44.000 loan deals from the US syndicated loan market from 1984 to 2017, we find that changes in the state corporate tax rates have an asymmetric effect on the cost of credit. An increase on the state corporate tax rates bears no significant results to the cost of credit, whereas a 1-point decrease of the corporate tax rate shaves at least 5.8 basis points from spreads, but likely more. The effect comes from the change of the demand of loans following a change in the corporate taxation from the firm side (demand channel), whereas the changes on the behavior of the banks (supply channel) do not bear significant results. Firm characteristics are crucial to understand the transmission mechanisms. Higher performance firms increase their demand for loans whereas firms with higher debt turn to alternative sources of financing. Our findings are robust to alternative measures of tax changes, to the comprehensive inclusion of relevant controls, to the inclusion of mechanisms for alternative sources for the financing of the firms, and to federal level controls for monetary and fiscal policy.