JoongHo Han is at Sungkyunkwan University, Kwangwoo Park is at the Korea Advanced Institute of Science and Technology, and George Pennacchi is at the University of Illinois. We are grateful for valuable comments from an anonymous referee, Adam Ashcraft, Mark Flannery, the Editor Campbell Harvey, Edward Kane, Hayne Leland, Greg Nini, and participants of the 2010 Financial Intermediation Research Society Conference and of seminars at Bocconi University, the Federal Deposit Insurance Corporation, the Federal Reserve Banks of Chicago and New York, KAIST, KDI School, Seoul National University, Sungkyunkwan University, Tilburg University, and the University of Venice. Hakkon Kim and Hyun-Dong Kim provided excellent research assistance.
Corporate Taxes and Securitization
Article first published online: 11 MAY 2015
© 2014 The American Finance Association
The Journal of Finance
Volume 70, Issue 3, pages 1287–1321, June 2015
How to Cite
HAN, J., PARK, K. and PENNACCHI, G. (2015), Corporate Taxes and Securitization. The Journal of Finance, 70: 1287–1321. doi: 10.1111/jofi.12157
- Issue published online: 11 MAY 2015
- Article first published online: 11 MAY 2015
- Accepted manuscript online: 27 MAR 2014 01:51PM EST
- Manuscript Accepted: 27 DEC 2013
- Manuscript Received: 17 JAN 2013
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.