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Tax-Based Collateral Limitations, Borrowing Arrangements and Firm Value

dc.contributor.advisor Dyreng, Scott D
dc.contributor.advisor Schipper, Katherine A
dc.contributor.author Hills, Robert
dc.date.accessioned 2019-06-07T19:48:40Z
dc.date.issued 2019
dc.identifier.uri https://hdl.handle.net/10161/18715
dc.description Dissertation
dc.description.abstract <p>I examine a tax-related friction that limits U.S. multinational corporations’ ability to use foreign assets as collateral in obtaining U.S. debt financing. I find that tax-based collateral limitations are associated with reduced debt capacity and higher borrowing costs. Additionally, I show that collateral limitations are associated with a decrease in the use of capital covenants and an increase in the use of performance covenants in private debt agreements. While the U.S. House and Senate passed versions of the Tax Cuts and Jobs Act of 2017 that included provisions to eliminate tax-based collateral limitations, the final version surprisingly retained these limitations. I find a negative relation between the extent to which a firm is affected by tax-based collateral limitations and market reactions around the passage of the final version of the Act, suggesting tax-based collateral limitations constrain borrowing arrangements and thereby reduce firm value. The costs associated with these collateral limitations offer one explanation for the under-sheltering puzzle, which suggests firms fail to take advantage of the supposed benefits of tax avoidance strategies.</p>
dc.subject Accounting
dc.subject Collateral
dc.subject Debt
dc.subject Debt Covenants
dc.subject Taxes
dc.title Tax-Based Collateral Limitations, Borrowing Arrangements and Firm Value
dc.type Dissertation
dc.department Business Administration
duke.embargo.months 23
duke.embargo.release 2021-05-21T00:00:00Z


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