Abstract

http://ssrn.com/abstract=2191544
 
 

References (56)



 
 

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Does Target Tax Aggressiveness Matter in Corporate Takeovers?


Xiumin Martin


Washington University in Saint Louis - Olin School of Business

Cong Wang


The Chinese University of Hong Kong (CUHK) - Department of Finance

Hong Zou


Faculty of Business and Economics, University of Hong Kong



Abstract:     
We examine whether tax avoidance of target firms affects takeover outcomes. We find that acquirers pay significantly lower premiums to tax aggressive targets. This negative effect is concentrated in acquisitions of opaque targets and targets operating in less competitive industries, and in acquisitions in which the acquirer hires a top-tier financial advisor. In addition, we find that target firms with a higher level of tax aggressiveness are more likely to receive a downward adjustment to the initial offer price. We also find that public acquirers are more likely to use stock as the currency when acquiring tax aggressive targets. Overall, our evidence suggests that acquirers perceive tax aggressiveness of target firms as a potential risk and price protect against this risk accordingly.

Number of Pages in PDF File: 54

Keywords: M&As, Tax aggressiveness, tax avoidance, due diligence, acquisition premium

JEL Classification: G32, G34, H26

working papers series


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Date posted: December 21, 2012 ; Last revised: November 16, 2013

Suggested Citation

Martin, Xiumin and Wang, Cong and Zou, Hong, Does Target Tax Aggressiveness Matter in Corporate Takeovers?. Available at SSRN: http://ssrn.com/abstract=2191544 or http://dx.doi.org/10.2139/ssrn.2191544

Contact Information

Xiumin Martin (Contact Author)
Washington University in Saint Louis - Olin School of Business ( email )
Saint Louis, MO 63130
United States
Cong Wang
The Chinese University of Hong Kong (CUHK) - Department of Finance ( email )
Shatin, N.T.
Hong Kong
(852)26961913 (Phone)
(852)26036586 (Fax)
Hong Zou
Faculty of Business and Economics, University of Hong Kong ( email )
Hong Kong, AK HK
Hong Kong
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