U.S. Worldwide Taxation and Domestic Mergers and Acquisitions

Abstract

This study shows that domestic mergers and acquisitions (M&A) were inhibited by the U.S.’s worldwide tax policy on foreign-earned income. Double Irish structures, a complex web of subsidiaries that reduce foreign tax rates and therefore increase potential repatriation tax rates, are associated with lower levels of domestic M&A by U.S. firms. These results do not reflect a continuation of prior trends or declines in worldwide acquisitiveness and are robust to several econometric approaches. We suggest that the Double Irish variable mitigates a confounding effect in an alternative tax variable that clouds inferences in tests of repatriation taxes and domestic M&A.

Keywords: Acquisitions, Repatriation, Taxes

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