Corporate Tax Cuts, Merger Activity, and Shareholder Wealth

Forthcoming: Journal of Accounting and Economics

59 Pages Posted: 16 Mar 2017 Last revised: 25 Mar 2020

See all articles by Jennifer Blouin

Jennifer Blouin

University of Pennsylvania - Accounting Department

Eliezer M. Fich

Drexel University - Department of Finance

Edward M. Rice

University of Washington - Michael G. Foster School of Business

Anh L. Tran

Cass Business School, City University London

Date Written: February 25, 2019

Abstract

We study the impact of the Domestic Production Activities Deduction (DPAD) on mergers and acquisitions. DPAD reduces corporate tax rates on income from work or goods made in the US. Results indicate that the quantity and quality of acquisition bids by DPAD-advantaged firms conform to the predictions of the neoclassical theory of the firm and the theory of financial constraints. Specifically, bids, particularly those cash-financed, increase substantially in industries with large DPAD-related tax cuts and for firms with financial constraints. Moreover, DPAD improves acquisition quality where acquirers and targets are likely to generate incremental DPAD tax benefits through their merger.

Keywords: Corporate Tax Deduction; Acquisitions; Firm Performance; Financial Constraints

JEL Classification: G34; H25; M48

Suggested Citation

Blouin, Jennifer and Fich, Eliezer M. and Rice, Edward M. and Tran, Anh L., Corporate Tax Cuts, Merger Activity, and Shareholder Wealth (February 25, 2019). Forthcoming: Journal of Accounting and Economics, Available at SSRN: https://ssrn.com/abstract=2933136 or http://dx.doi.org/10.2139/ssrn.2933136

Jennifer Blouin

University of Pennsylvania - Accounting Department ( email )

1315 SHDH
3620 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-1266 (Phone)

Eliezer M. Fich

Drexel University - Department of Finance ( email )

LeBow College of Business
3220 Market Street – 11th Floor
Philadelphia, PA 19104
(215) 895-2304 (Phone)

Edward M. Rice (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Anh L. Tran

Cass Business School, City University London ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44-207-040-5109 (Phone)
+44-207-040-8881 (Fax)

HOME PAGE: http://https://www.cass.city.ac.uk/faculties-and-research/experts/anh-tran

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
392
Abstract Views
1,821
rank
84,751
PlumX Metrics