How does greater transparency of tax risks influence the financing provided by creditors?

Abstract

In the evolving landscape of global finance, the transparency of corporate tax practices has become increasingly important. Stakeholders, such as creditors, investors and regulators, want more transparency in the way companies handle and disclose their tax obligations. This master thesis investigates a critical aspect of this dynamic: how the transparency of tax risks influences the financing options available to corporations from creditors. This thesis attempts to find an answer by analysing the hypothesis of whether greater transparency in the disclosure of tax information is associated with a higher probability of obtaining a bank loan.After providing a theoretical explanation, I have included a detailed quantitative analysis to evaluate the hypotheses formed by the literature review. Utilising two regression models with distinct dependent variables, this analysis examines the direct and indirect effects of tax risk transparency on the willingness of creditors to provide financing. Overall, the findings suggest that while greater transparency in tax risks may increase a company's credibility and reduce perceived risk, it does not necessarily result in easier access to bank loans or more favourable financing terms. Instead, transparent companies may pursue more conservative financial strategies, reducing their reliance on debt. This understanding of the relationship between tax transparency and financing underscores the importance of considering multiple factors in corporate financial decision-making. The study's limitations, which include its dependence on information from the Bel-first database and its omission of variables that may have been important, indicate room for future research.