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Profit Shifting and Firm Credit

Author

Listed:
  • Fotis Delis

    (European Commission Joint Research Centre)

  • Manthos D. Delis

    (Audencia Business School)

  • Sotirios Kokas

    (University of Essex)

  • Luc Laeven

    (European Central Bank (ECB); Centre for Economic Policy Research (CEPR))

  • Steven Ongena

    (University of Zurich; KU Leuven; Swiss Finance Institute; NTNU Business School; Centre for Economic Policy Research (CEPR))

Abstract

Profit shifting by multinational enterprises (MNEs) generates earnings but also carries risks. We examine how banks perceive this tradeoff in their credit decisions, mainly credit costs. Using novel profit shifting estimates for each MNE-year, we show that banks, on average, give favorable credit spreads and larger loan amounts to profit-shifting MNEs. This is in stark contrast to other tax evasion practices that yield the opposite results. However, the introduction of OECD’s Base Erosion and Profit Shifting (BEPS) introduced significant risk to profit-shifting, yielding increasing credit spreads and lowering loan amounts, especially where banks are less able to collect information.

Suggested Citation

  • Fotis Delis & Manthos D. Delis & Sotirios Kokas & Luc Laeven & Steven Ongena, 2023. "Profit Shifting and Firm Credit," Swiss Finance Institute Research Paper Series 23-70, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2370
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    More about this item

    Keywords

    Corporate taxes; Profit shifting; Bank credit; Loan Spreads; Taxation policy;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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