Bank Loan Contracting and International Tax Planning at Multinational Firms

Unlike purely domestic firms, globalized firms have unique opportunities to engage in international tax planning activities. This study examines whether banks consider international tax planning, and in particular potential earnings repatriation taxes, when setting loan contracts for multinational firms. We find that U.S. multinationals with high levels of potential earnings repatriation taxes face higher loan spreads, and we find that this effect is more pronounced for firms that have low profitability or that are financially constrained. We also document that banks are more likely to require collateral and include more financial covenants in the contracts of these borrowers. Our study contributes to the literature by investigating the effect of international tax issues on bank lending