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The effect of corporate taxation on bank transparency: Evidence from loan loss provisions

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  • Andries, Kathleen
  • Gallemore, John
  • Jacob, Martin

Abstract

We examine how the corporate tax system, through its treatment of loan losses, affects bank financial reporting. Exploiting cross-country and intertemporal variation in income tax rates and loan loss provision deductibility, we find that loan loss provisions are increasing in the tax rate for countries that permit general provision tax deductibility. When general provisions are deductible, a 1 percentage point rate increase leads to a provision increase of 4.9% of the sample average. This effect is driven by the tax system's encouragement of timelier loan loss recognition, suggesting that corporate taxation is an important determinant of bank financial reporting transparency.

Suggested Citation

  • Andries, Kathleen & Gallemore, John & Jacob, Martin, 2017. "The effect of corporate taxation on bank transparency: Evidence from loan loss provisions," Journal of Accounting and Economics, Elsevier, vol. 63(2), pages 307-328.
    • Handle: RePEc:eee:jaecon:v:63:y:2017:i:2:p:307-328
    DOI: 10.1016/j.jacceco.2017.03.004
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    More about this item

    Keywords

    Bank transparency; Bank regulation; Loan loss provisions; Corporate taxation;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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