Domestic Taxes and Inbound Acquisitions
50 Pages Posted: 8 Jul 2015 Last revised: 18 Mar 2016
Date Written: March 17, 2016
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: Suggested Citation