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Domestic Taxes and Inbound Acquisitions

50 Pages Posted: 8 Jul 2015 Last revised: 18 Mar 2016

Andrew Bird

Carnegie Mellon University

Date Written: March 17, 2016

Abstract

US corporations face higher tax burdens than those in many other countries, potentially influencing merger and acquisition activity. A theoretical model of this process yields two testable implications: that, relative to high-tax domestic bidders, low-tax foreign bidders will specialize in both high profitability target firms and those with few tax deductions. I find support for both effects in the US acquisition market using cross-sectional variation in target profitability and industry-level variation in deductions from bonus depreciation tax reform. Counterfactual simulations show that this reform induced a large drop in foreign acquisitions and a significant loss of aggregate wealth.

Keywords: international taxes, mergers and acquisitions

JEL Classification: H25, G34

Suggested Citation

Bird, Andrew, Domestic Taxes and Inbound Acquisitions (March 17, 2016). Available at SSRN: https://ssrn.com/abstract=2627367 or http://dx.doi.org/10.2139/ssrn.2627367

Andrew Bird (Contact Author)

Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

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