State corporate tax changes and bond pricing: US evidence
International Review of Financial Analysis(2024)
摘要
In this study, we empirically investigate whether and to what extent state tax changes may affect the cost of debt. We employ staggered changes in state corporate income tax rates in the U.S. as exogenous shocks and estimate the effects of these state tax changes on bond at-issue yield spreads. We find a significant and positive relation between bond yield spreads and state tax increases but an insignificant relation between bond yield spreads and state tax decreases. On average, tax increases result in an increase of 34 basis points in the average bond yield spread. In addition, we document that bond investors demand higher yield spreads because tax increases aggravate firms' default risk by increasing firm leverage and return volatility. Moreover, we extend our analysis to equity holders and report a negative relation between stock market reaction to bond issuances subject to state tax increases.
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关键词
State tax changes,Cost of debt,Bond issues,Default risk,Asymmetric pattern
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