The Effect of Seller Income Taxes on Acquisition Price: Evidence from Purchases of Taxable and Tax-Exempt Hospitals
Dan S. Dhaliwal
University of Arizona - Department of Accounting
University of Chicago - Booth School of Business
Simon School of Business, University of Rochester
Journal of the American Taxation Association (JATA), Vol. 26, No. 2
This paper investigates the impact of the seller's tax liability on the price paid in hospital acquisitions. Lock-in theory predicts that for a given asset, asset holders with larger tax liabilities demand a higher price to compensate for income tax liabilities generated on the sale. We apply this theory to a sample of hospital acquisitions by for-profit firms where the primary difference among target hospitals is the seller's tax status - either taxable or tax-exempt. Consistent with the predicted lock-in effect, the evidence indicates that purchase prices are higher when the seller is taxable than when the seller is tax-exempt. Thus, our findings suggest that seller tax liabilities are positively related to purchase prices.
JEL Classification: H24, H25, G34, G32, M41, L31Accepted Paper Series
Date posted: March 29, 2004
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