CEO tax burden and debt contracting

• 成果类型: Article
• 署名作者: Kubick, Thomas R.; Lockhart, G. Brandon; Mauer, David C.
• 署名单位: University of Nebraska System; University of Nebraska Lincoln; Clemson University; University of North Carolina; University of North Carolina Charlotte
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-024-09829-5
• 发表日期: 2025
• 页码: 738-775
• 关键词: capital-gains taxes; stock option portfolios; taxpayer relief act; personal taxes; RISK; COMPENSATION; incentives; INVESTMENT; price; determinants

摘要

We examine how locked-in CEO equity attributable to large unrealized capital gains tax liabilities influences the cost and restrictiveness of debt contracts. We find that firms enjoy lower loan spreads and are more (less) likely to receive ratings upgrades (downgrades) when their CEO has a large tax burden. Using the capital gains tax rate decrease in the Tax Reform Act of 1997 as an exogenous shock to CEO tax burdens, we find that CEOs with large tax burdens before the tax cut experience a sharp increase in loan spreads afterward. This increase in spreads is larger when the firm has low profitability, high bankruptcy risk, and when loans are unsecured. Further, CEO tax burdens decrease the restrictiveness of nonprice loan terms, increase syndicate size, and decrease issue costs.