Does Target Tax Aggressiveness Matter in Corporate Takeovers?

44 Pages Posted: 21 Dec 2012 Last revised: 30 Oct 2014

Xiumin Martin

Washington University in Saint Louis - Olin School of Business

Cong Wang

China Europe International Business School (CEIBS)

Hong Zou

Faculty of Business and Economics, University of Hong Kong

Abstract

We examine whether tax avoidance of target firms affects takeover pricing. We find that acquirers pay lower premiums to tax aggressive targets. This 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. Tax aggressive targets are more likely to receive a downward adjustment to the initial offer price, and are more likely to be paid with acquirers’ stock. Overall, our evidence suggests that acquirers perceive tax aggressiveness of target firms as a contingent liability and adjust takeover price accordingly.

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

JEL Classification: G32, G34, H26

Suggested Citation

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

Xiumin Martin (Contact Author)

Washington University in Saint Louis - Olin School of Business ( email )

Saint Louis, MO 63130
United States

Cong Wang

China Europe International Business School (CEIBS) ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206
China

Hong Zou

Faculty of Business and Economics, University of Hong Kong ( email )

Hong Kong, AK HK
Hong Kong

Paper statistics

Downloads
448
Rank
50,772
Abstract Views
1,660