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Earnings Repatriation Tax Cost Risks and Bank Loan Contracting
Journal article   Open access   Peer reviewed

Earnings Repatriation Tax Cost Risks and Bank Loan Contracting

Derrald Stice, Zhiming Ma and Danye Wang
Journal of risk and financial management, Vol.19(3), 172
03/01/2026
DOI: 10.3390/jrfm19030172
url
https://doi.org/10.3390/jrfm19030172View
Published (Version of record) Open Access

Abstract

Unlike purely domestic firms, multinational companies have distinctive opportunities to engage in sophisticated international tax planning strategies. This study investigates whether banks perceive potential earnings repatriation taxes as a significant source of risk when designing loan agreements for these firms. Our findings reveal that U.S. multinationals facing higher potential repatriation tax burdens are subject to wider loan spreads, indicating increased risk premiums. Moreover, this effect is especially pronounced among firms with low profitability or limited financial flexibility, highlighting the risk-sensitive nature of these loans. We also observe that lenders are more likely to demand collateral and impose stricter financial covenants in loans to firms with substantial repatriation tax exposure, further underscoring that banks regard these taxes as a firm-specific risk factor. By exploring the intersection of international tax considerations, potential earnings repatriation taxes here, and debt contracting, our research makes a valuable contribution to the literature, shedding light on how global tax issues influence credit markets and lending behavior.

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