Tax Avoidance as a Driver of Mergers and Acquisitions

49 Pages Posted: 26 Dec 2013 Last revised: 3 May 2017

See all articles by Thomas Belz

Thomas Belz

University of Mannheim

Leslie A. Robinson

Dartmouth College - Accounting; Dartmouth College - Tuck School of Business

Martin Ruf

University of Tübingen

Christian Steffens

University of Mannheim

Date Written: December 23, 2013

Abstract

Following a merger or acquisition, a target firm’s effective tax rate decreases on average by 3 percentage points. This decline is as high as 8 percentage points when the acquiring firm is tax aggressive. Further, target firm profitability decreases, particularly in the case of targets having a higher statutory tax rate than the acquirer. These results point to acquiring firms’ ability to more effectively lower target firms’ tax burdens after the deal takes place being a potential driver of the deal. On the contrary we do not find a change in target leverage post deal. The latter finding we attribute to the existence of group taxation regimes in many countries, which makes it more efficient to use a highly levered holding company to acquire the target instead of altering the leverage of the target itself.

Keywords: Tax accounting, mergers and acquisitions, tax management, propensity score matching

JEL Classification: M41, G34, H25

Suggested Citation

Belz, Thomas and Robinson, Leslie and Ruf, Martin and Steffens, Christian, Tax Avoidance as a Driver of Mergers and Acquisitions (December 23, 2013). Available at SSRN: https://ssrn.com/abstract=2371706 or http://dx.doi.org/10.2139/ssrn.2371706

Thomas Belz

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

Leslie Robinson (Contact Author)

Dartmouth College - Accounting ( email )

100 Tuck Hall
Hanover, NH 03755
United States
603-646-4018 (Phone)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Martin Ruf

University of Tübingen ( email )

Nauklerstraße 47
Tübingen, D-72076
Germany

HOME PAGE: http://www.uni-tuebingen.de/wiwi/steuern

Christian Steffens

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
729
Abstract Views
2,868
rank
34,440
PlumX Metrics