The Outsized Role of Tax Havens in Mergers and Acquisitions

Abstract

Tax havens are used for tax minimization. Whether tax havens affect corporate control in the form of cross-border mergers and acquisitions (M&A) or are merely used as conduits between host and destination countries of (greenfield) foreign direct investment and portfolio investment is an open question. We provide new stylized facts through the first comprehensive analysis of cross-border, tax-haven mergers and acquisitions (M&A). Using novel tax residence data, we investigate 20,360 such transactions from 1990 to 2023, totaling $8.3 trillion in deal value, or 29.7% of cross-border M&A volume. $4.6 of the $8.3 trillion exceeds our prediction based on a gravity model with economic fundamentals. Small havens such as Bermuda alone make up $2.4 trillion or 8.5% of cross-border M&A volume. For identification, we use a change in US tax law in 2004.

Keywords: Capital Flows, Cross-Border Mergers and Acquisitions, Tax Havens

JEL Classification: F21, G34, H73