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Tax Planning, Regulatory Capital Planning, and Financial Reporting Strategy for Commercial Banks

We test whether banks' investment and financing policies can be explained by tax status. We document changes in bank holdings of municipal bonds in response to changes in tax rules relating to deductibility of interest expense. We also document an association between banks' marginal tax ra...

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Published in:	The Review of financial studies 1990-01, Vol.3 (4), p.625-650
Main Authors:	Scholes, Myron S., Wilson, G. Peter, Wolfson, Mark A.
Format:	Article
Language:	English
Subjects:	Balance sheets Bank assets Bank capital Bank management Banking industry Banking regulation Banks Commercial banks Costs Financial investments Financial regulation Financial reporting Income taxes Insurance regulation Investment banking Investments Losses Municipal bonds Revenue regulations Tax planning Tax preference items Tax rates Treasuries
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description	We test whether banks' investment and financing policies can be explained by tax status. We document changes in bank holdings of municipal bonds in response to changes in tax rules relating to deductibility of interest expense. We also document an association between banks' marginal tax rates and their investment and financing decisions, which is consistent with the existence of tax clienteles. However, banks do not sort themselves perfectly into investment and financing clienteles because of adjustment costs. We posit specific types of transaction-cost impediments to tax planning, and document that banks apparently trade off these costs against tax-planning benefits.
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source	EconLit s plnými texty; International Bibliography of the Social Sciences (IBSS); JSTOR-E-Journals; Oxford University Press Archive; BSC - Ebsco (Business Source Ultimate)
subjects	Balance sheets Bank assets Bank capital Bank management Banking industry Banking regulation Banks Commercial banks Costs Financial investments Financial regulation Financial reporting Income taxes Insurance regulation Investment banking Investments Losses Municipal bonds Revenue regulations Tax planning Tax preference items Tax rates Treasuries
title	Tax Planning, Regulatory Capital Planning, and Financial Reporting Strategy for Commercial Banks
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