The Role of Creditor Protection in Lending and Tax Avoidance

Abstract We examine how creditor rights affect the trade-off between non-debt and debt tax shields. Using four bankruptcy reforms a panel of private public firms from Italy, we show that laws empowering creditors reduce avoidance increase financing, consistent with substituting shields corroborate validity our findings using across 33 countries. Additionally, document impact protection is mitigated by system characteristics, which significantly incentives to substitute debt.