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Is Tax Volatility Priced by Lenders in the Syndicated Loan Market?

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  • Daniel Saavedra

Abstract

In this study, I consider the effects of tax risk from tax volatility on the pricing of syndicated debt. Tax volatility is an interesting feature in that managers have some discretion over the risks they take with their tax strategies, which, however, are often harder to monitor for outsiders than risks related to other business activities. Framing my predictions based on the theoretical model developed by Merton [1974], I hypothesize and find that tax volatility is incrementally informative to other priced risks suggesting that tax risks per se are relevant to lenders. Moreover, I find that the results are stronger when the loan contract does not include performance pricing provisions or other restrictions, such as capital expenditure covenants, that protect lenders. This evidence adds to knowledge about the real effects of tax risk.

Suggested Citation

  • Daniel Saavedra, 2019. "Is Tax Volatility Priced by Lenders in the Syndicated Loan Market?," European Accounting Review, Taylor & Francis Journals, vol. 28(4), pages 767-789, August.
    • Handle: RePEc:taf:euract:v:28:y:2019:i:4:p:767-789
    DOI: 10.1080/09638180.2018.1520641
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    Cited by:

    1. Arfah Habib Saragih & Syaiful Ali, 2023. "Corporate tax risk: a literature review and future research directions," Management Review Quarterly, Springer, vol. 73(2), pages 527-577, June.
    2. Giese, Henning & Koch, Reinald & Sureth, Caren, 2024. "Where to locate tax employees? The role of tax complexity and tax risk implications," arqus Discussion Papers in Quantitative Tax Research 285, arqus - Arbeitskreis Quantitative Steuerlehre.
    3. Kolias, Georgios & Koumanakos, Evangelos, 2022. "CEO duality and tax avoidance: Empirical evidence from Greece," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 47(C).
    4. Aguir, Wael & Ater, Brandon & Anabila, Andrew A. & Sobngwi, Christian Kuiate, 2022. "The role of shared auditors in loan contracts," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 87-97.
    5. Daniel Saavedra, 2023. "Do firms follow the SEC’s confidential treatment protocols? Evidence from credit agreements," Review of Accounting Studies, Springer, vol. 28(3), pages 1388-1412, September.

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