International Taxation and Productivity Effects of M&As
51 Pages Posted: 9 Mar 2017 Last revised: 4 Feb 2021
Date Written: May 27, 2020
We investigate how changes in firm productivity after M&As are affected by differences in profit taxation between the target and the acquirer. We argue that tax differentials distort the efficient allocation of productive factors following an M&A and thus inhibit the realization of productivity improvements. Using firm-level data on inputs and outputs of production as well as on corporate M&As, we show that the absolute tax differential between the locations of two merging firms reduces the subsequent total factor productivity gain. This effect is less pronounced when firms can use international profit shifting to attenuate effective differences in taxation.
Keywords: M&A, productivity, international taxation
JEL Classification: F23, G34, H25, D24
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