Corporate Capital Gains Taxation and Acquisition Activity

64 Pages Posted: 9 Apr 2016 Last revised: 11 Apr 2019

See all articles by Lars P. Feld

Lars P. Feld

Walter Eucken Institute; University of Freiburg - College of Economics and Behavioral Sciences; CESifo (Center for Economic Studies and Ifo Institute)

Martin Ruf

University of Tübingen

Ulrich Schreiber

University of Mannheim - Department of Business Administration and Taxation; Centre for European Economic Research (ZEW)

Maximilian Todtenhaupt

Norwegian School of Economics (NHH)

Johannes Voget

University of Mannheim - Accounting and Taxation

Multiple version iconThere are 2 versions of this paper

Date Written: April 11, 2019

Abstract

Using a comprehensive sample of M&A deals around the world, we analyze the effect of corporate capital gains taxation on M&As involving corporate sellers (e.g. subsidiary sales). Capital gains taxation distorts the market for corporate control by imposing a cost on corporate sellers which leads to a lock-in effect that inhibits the completion of deals. We find that an increase in the corporate capital gains tax rate affects the location choice and reduces acquisition activity significantly. For the United States, this implies forgone acquisitions from corporate sellers at a volume of around $34.4 billion annually due to capital gains taxes.

Keywords: Corporate taxation, M&A, capital gains tax, lock-in effect

JEL Classification: H25, G34

Suggested Citation

Feld, Lars P. and Ruf, Martin and Schreiber, Ulrich and Todtenhaupt, Maximilian and Voget, Johannes, Corporate Capital Gains Taxation and Acquisition Activity (April 11, 2019). ZEW - Centre for European Economic Research Discussion Paper No. 16-007, Available at SSRN: https://ssrn.com/abstract=2760316 or http://dx.doi.org/10.2139/ssrn.2760316

Lars P. Feld

Walter Eucken Institute ( email )

Goethestrasse 10
Freiburg im Breisgau, Baden-Württemberg D-79100
Germany

University of Freiburg - College of Economics and Behavioral Sciences ( email )

Freiburg, D-79085
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Martin Ruf

University of Tübingen ( email )

Nauklerstraße 47
Tübingen, D-72076
Germany

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

Ulrich Schreiber

University of Mannheim - Department of Business Administration and Taxation ( email )

D-68131 Mannheim
Germany
+49 621 181 1718 (Phone)
+49 621 181 1716 (Fax)

Centre for European Economic Research (ZEW)

D-68161 Mannheim
Germany

Maximilian Todtenhaupt (Contact Author)

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

HOME PAGE: http://https://sites.google.com/view/todtenhaupt

Johannes Voget

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

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