Taxes, Financial Reporting Standards and the Role of Information Asymmetry in the Structuring of Cross-Border Mergers and Acquisitions

Abstract:     
We study the effect of high quality financial standards and shareholder-level capital gains taxes on the structuring of cross-border mergers and acquisitions. Using 5,837 M&A transaction across a 16-year period, we find that higher shareholder capital gains tax rates lead to increased use of tax-free share-for-share exchanges. Consistent with theory, the role of shareholders’ tax incentives are mitigated by increased information asymmetry in cross-border transactions. However, we find evidence that higher quality financial reporting standards reduce this information asymmetry allowing more tax efficient cross-border transactions.

Number of Pages in PDF File: 26

working papers series