Corporate Taxes and Securitization

Joongho Han, Kwangwoo Park, George Pennacchi

Research output: Contribution to journalArticlepeer-review

Abstract

Most banks pay corporate income taxes, but securitization vehicles do not. Our model shows that, when a bank faces strong loan demand but limited deposit market power, this tax asymmetry creates an incentive to sell loans despite less-efficient screening and monitoring of sold loans. Moreover, loan-selling increases as a bank's corporate income tax rate and capital requirement rise. Our empirical tests show that U.S. commercial banks sell more of their mortgages when they operate in states that impose higher corporate income taxes. A policy implication is that tax-induced loan-selling will rise if banks' required equity capital increases.

Original languageEnglish (US)
Pages (from-to)1287-1321
Number of pages35
JournalJournal of Finance
Volume70
Issue number3
DOIs
StatePublished - Jun 1 2015
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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