Corporate Taxes and Securitization

Han, Joongho; Park, Kwangwoo; Pennacchi, George

doi:10.2139/ssrn.1600008

Cited by 33 publications

(5 citation statements)

References 6 publications

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“…We find that firms use taxes in conjunction with payout policy to mitigate the adverse impact of financing constraints on firm investments. Third, our study extends our understanding of the relation between taxation and off‐balance sheet financing (Shevlin 1987; Mills and Newberry 2005; Han et al 2015). As Hanlon and Heitzman (2010) indicate, off‐balance sheet financing is often tied to financial reporting incentives, which cloud the inferences when trying to understand off‐balance sheet finances and tax decisions.…”

Section: Introductionsupporting

confidence: 63%

“…Tax planning activities are a popular source of internally generated cash flows due to their discretionary nature and profitability (Mills et al 1998). The prior literature establishes that these cash flows are a form of off‐balance sheet financing since the positions do not appear as liabilities on the balance sheet (Shevlin 1987; Engel et al 1999; Han et al 2015; Scholes et al 2020). To simplify, in the case of a temporary tax position, the firm receives cash tax benefits similar to an interest‐free loan from the US government.…”

Section: Background and Predictionsmentioning

confidence: 99%

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Do Financing Constraints Lead to Incremental Tax Planning? Evidence from the Pension Protection Act of 2006*

Campbell

Goldman

2021

Contemporary Accting Res

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Over the past three decades, academic research has sought to understand how cash shortfalls impact a firm's ability to take all available value‐increasing investment projects. We investigate whether firms facing greater financing constraints turn to tax strategies that generate lower cash effective tax rates (ETRs) to mitigate the adverse effect of these financing constraints. We use the Pension Protection Act of 2006 (PPA 2006) as an exogenous shock to financing constraints for pension firms, but not for other firms. Using a difference‐in‐differences research design, we predict and find that pension firms experience a decrease in their cash ETRs by 1.8%–2.4% after the PPA 2006, relative to other firms. These cash tax savings mitigate the investment shortfall brought about by financing constraints by 19%. We also predict and find that the decline in cash ETRs is greater among firms more adversely affected by the PPA 2006. Our paper sheds light on the direction, causality, and economic magnitude of the association between financing constraints and tax planning activities. We also provide insight into the role of tax planning activities within firms' broader corporate business strategies in responding to financing constraints.

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Section: Introductionsupporting

confidence: 63%

Section: Background and Predictionsmentioning

confidence: 99%

Do Financing Constraints Lead to Incremental Tax Planning? Evidence from the Pension Protection Act of 2006*

Campbell

Goldman

2021

Contemporary Accting Res

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“…However, it is clear that the existence of vehicles allowing for a full pass-through of mortgage payments unencumbered by tax was necessary for securitizations to prosper. As recently argued by Han et al (2010), there is some evidence to suggest that the differential tax treatment of loans on banks' books (subject to corporation tax) and the exempt status of securitization vehicles may have been a factor for the growth of securitizations. While many vehicles were created on shore, the vast majority of securitizations traded internationally were issued through special purpose vehicles (SPVs) domiciled in offshore centres (Chapters 4 and 8), where tax conditions for structuring financial securities as well as market regulation were negligible (Eddins 2009).…”

Section: Household Sector: Indebtedness and Taxmentioning

confidence: 99%

“…In some circumstances, avoiding the taxation of SPV may have contributed to the growth of securitization. Because of the corporate taxation of bank income, some banks may have an incentive to sell loans, and this incentive is an increasing function of the corporate income-tax rate (Han et al 2010).…”

mentioning

confidence: 99%

Taxation and the Financial Crisis

Alworth¹,

Arachi²

2012

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BookTaxation and the Financial Crisis Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte.

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“…Since mortgages sold by regulated banks are often purchased by institutions in the shadow banking system (Pozsar et al. []), and these institutions typically securitize the mortgages, the majority of the economic risk of those sold mortgages is transferred to the shadow banking system (Rosen [], Han, Park, and Pennacchi []). As discussed below, we provide evidence that new consolidation under FAS 166/167 increased banks’ mortgage sales, supporting this concern.…”

Section: Introductionmentioning

confidence: 99%

The Real Effects of FAS 166/167 on Banks’ Mortgage Approval and Sale Decisions

Dou

Ryan

Xie

2018

J of Accounting Research

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We examine the real effects of FAS 166 and FAS 167 on banks’ loan‐level mortgage approval and sale decisions. Effective in 2010, these standards tightened the accounting for securitizations and consolidation of securitization entities, respectively, causing banks to recognize an estimated $811 billion of securitized assets on balance sheet. We find that banks that recognize more securitized assets exhibit larger decreases in mortgage approval rates and larger increases in mortgage sale rates. These effects significantly exceed those of banks’ off–balance sheet securitized assets, consistent with our results being driven by the consolidation of securitization entities rather than by securitization per se. We conduct tests that help rule out the financial crisis as an alternative explanation for our results. Further analyses suggest that mechanisms underlying the results include consolidating banks’ reduced regulatory capital adequacy, increased market discipline, and consequent desire not to recognize high‐risk mortgages on balance sheet.

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Corporate Taxes and Securitization

Cited by 33 publications

References 6 publications

Do Financing Constraints Lead to Incremental Tax Planning? Evidence from the Pension Protection Act of 2006*

Do Financing Constraints Lead to Incremental Tax Planning? Evidence from the Pension Protection Act of 2006*

Taxation and the Financial Crisis

The Real Effects of FAS 166/167 on Banks’ Mortgage Approval and Sale Decisions

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