Andrew Ellul, Associate Professor of Finance from Kelley School of Business, gave a presentation on Thursday, December 8, to the researchers at The Institute of Economics, Zagreb, about the research paper "Transparency, Tax Pressure and Access to Finance" that he has written recently with co-authors Tullio Jappelli and Marco Pagano from University of Naples Federico II, and Fausto Panunzi from Bocconi University.
The presentation was organized by senior research fellow Sonja Radas, Ph.D., as part of workshops for Department of Industrial Economics, Entrepreneurship and Innovation, with aim to connect EIZ and Kelley School of Business research activities, and has raised lots of interest among EIZ researchers.
Abstract
In choosing accounting transparency, firms must trade off the benefits from access to more abundant and cheaper capital against the cost of a greater tax burden. The paper studies this trade-off in a model with distortionary taxes and endogenous rationing of external finance, and tests its predictions using two data sets: the Worldscope database and the World Bank Enterprise Survey. The main predictions of the model are borne out by the evidence from both data sets. First, investment and access to finance are positively correlated with accounting transparency and negatively with tax pressure, controlling for firm-level characteristics, sector and country effects. Second, transparency is negatively correlated with tax pressure, particularly in sectors where firms are less dependent on external finance. Finally, financial development enhances the positive effect of transparency on investment, and encourages greater transparency by firms that are more dependent on external finance.
