Do U.S. Firms Disguise Acquisitions to Avoid Taxes?

The Financial Review, 2021, 1-33.

50 Pages Posted: 9 Mar 2021 Last revised: 12 Nov 2021

See all articles by Jeremiah Harris

Jeremiah Harris

Kent State University - College of Business Administration

William O'Brien

University of Illinois at Chicago

Date Written: June 24, 2021

Abstract

Our study finds evidence consistent with U.S. multinational firms disguising domestic acquisitions as corporate reorganizations to avoid repatriation-related taxes. We find that a combination of high potential repatriation costs and large overseas earnings balances is positively associated with domestic acquisition volume, but only in deals with low visibility to regulators and investors. Consistent with repatriations of overseas cash, these firms’ low visibility acquisitions (but not their higher-visibility counterparts) are associated with 4-7% lower overseas earnings balances. After a 2017 tax reform reduced the value of this technique, the positive relationship between low visibility acquisitions and repatriation costs disappears or reverses.

Keywords: Acquisitions; Repatriation; Taxes

JEL Classification: F23; G34; G38; H21; H26

Suggested Citation

Harris, Jeremiah and O'Brien, William, Do U.S. Firms Disguise Acquisitions to Avoid Taxes? (June 24, 2021). The Financial Review, 2021, 1-33., Available at SSRN: https://ssrn.com/abstract=2613016 or http://dx.doi.org/10.2139/ssrn.2613016

Jeremiah Harris (Contact Author)

Kent State University - College of Business Administration ( email )

P.O. Box 5190
Kent, OH 44242-0001
United States

William O'Brien

University of Illinois at Chicago ( email )

601 S. Morgan St.
Chicago, IL 60607
United States

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