The Effect of Taxes on Acquisition Price and Transaction Structure

Posted: 3 May 2001

See all articles by Steven L. Henning

Steven L. Henning

Southern Methodist University

Wayne Shaw

Southern Methodist University (SMU) - Accounting Department

Toby Stock

Ohio University - School of Accountancy

Abstract

The purpose of this paper is to investigate the effect of the target's tax status on the structure of taxable corporate acquisitions. Specifically, we examine how the taxes imposed on the parties to the transaction are shared. Our results suggest the acquirer bears target tax costs through higher acquisition prices. In addition, our results also suggest that the acquirer pays little, if anything, to the target for the use of target net operating losses. Finally, we find that the target's tax status affects the transaction structure since targets with higher marginal tax rates are more likely to desire contingent payments in the contract.

Suggested Citation

Henning, Steven L. and Shaw, Wayne H. and Stock, Toby, The Effect of Taxes on Acquisition Price and Transaction Structure. Journal of American Taxation Association, Vol. 22, Supplement 2000. Available at SSRN: https://ssrn.com/abstract=261978

Steven L. Henning (Contact Author)

Southern Methodist University ( email )

6212 Bishop Blvd.
Cox School of Business Department of Accounting
Dallas, TX 75275
214-768-3082 (Phone)
214-768-4099 (Fax)

Wayne H. Shaw

Southern Methodist University (SMU) - Accounting Department ( email )

United States
214-768-3053 (Phone)

Toby Stock

Ohio University - School of Accountancy ( email )

College of Business Administration
526 Copeland Hall
Athens, OH 45701
United States
740-593-2016 (Phone)
740-593-2412 (Fax)

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