Does IRS monitoring matter for the cost of bank loans?

Bermpei, Theodora, Kalyvas, Nikolaos A and Wolfe, Simon (2023) Does IRS monitoring matter for the cost of bank loans? Journal of Financial Services Research, [JFSR-D-21-00153R2]. (doi:10.1007/s10693-023-00403-9).

Record type: Article

Abstract

We show that IRS monitoring exerts a significantly negative effect on the cost of syndicated loans. A one standard deviation increase in the probability of an IRS audit decreases loan spreads by around nine basis points. We also find that this effect is stronger for borrowers with better lending relationships and credible access to public markets. These results indicate that IRS monitoring could increase the bargaining power of borrowers and restrain banks from extracting informational rents from their lending relationships. Thus, they provide a novel insight into how IRS monitoring could lower the cost of financing from the banking system.

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Accepted/In Press date: 31 January 2023

e-pub ahead of print date: 15 March 2023

Published date: 15 March 2023

Keywords: Syndicated loans, IRS monitoring, Information asymmetry, Lending relationships, Information asymmetry, IRS monitoring, Lending relationships, Syndicated loans