Abstract

http://ssrn.com/abstract=1623772
 
 

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Ownership Efficiency and Tax Advantages: The Case of Private Equity Buyouts


Pehr-Johan Norbäck


Research Institute of Industrial Economics (IFN)

Lars Persson


Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)

Joacim Tåg


Research Institute of Industrial Economics (IFN)

June 11, 2010

IFN Working Paper No. 841

Abstract:     
Commentators on the private equity industry often claim that favorable tax treatment gives private equity firms advantages in the market for corporate control. But we show that tax advantages do not affect the equilibrium ownership of corporate assets when acquisition costs are fully deductible since buyers' valuations of assets are then independent of taxes. However, tax advantages are of importance under limited bidding competition, limited deductibility and in the presence of oligopolistic externalities in the product market. We also show that from an efficiency perspective, there are too many acquisitions in a double taxation system because acquisitions create deductions for buyers that are not available to sellers.

Number of Pages in PDF File: 33

Keywords: Capital Gains Tax, Corporate Tax, Ownership Efficiency, Private Equity, Buyouts, LBOs, M&As

JEL Classification: D2, F23, G18, H2, H25, H26, L1, L13

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Date posted: June 13, 2010  

Suggested Citation

Norbäck, Pehr-Johan and Persson, Lars and Tåg, Joacim, Ownership Efficiency and Tax Advantages: The Case of Private Equity Buyouts (June 11, 2010). IFN Working Paper No. 841. Available at SSRN: http://ssrn.com/abstract=1623772 or http://dx.doi.org/10.2139/ssrn.1623772

Contact Information

Pehr-Johan Norbäck
Research Institute of Industrial Economics (IFN) ( email )
Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden
Lars Persson (Contact Author)
Research Institute of Industrial Economics (IFN) ( email )
Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Joacim Tåg
Research Institute of Industrial Economics (IFN) ( email )
Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden
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