Download this Paper Open PDF in Browser

Corporate Tax Cuts, Merger Activity, and Shareholder Wealth

59 Pages Posted: 16 Mar 2017  

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: March 14, 2017

Abstract

We evaluate the impact of the Domestic Production Activities Deduction (DPAD) on mergers and acquisitions. DPAD reduces effective corporate income tax rates for firms based on their income from work or goods made in the US. We find that acquisition spending increases substantially for firms in industries with large DPAD-related corporate income tax cuts. Other results indicate that the quality of acquisitions by DPAD-advantaged firms varies as predicted by existing theories of the firm. Specifically, DPAD improves acquisition quality for bidders with financial constraints or for those that depend on major business counterparties, but not for bidders in non-competitive industries.

Keywords: Corporate Tax Deduction; Acquisitions; Firm Performance; Agency Problems

JEL Classification: G34; H25; M48

Suggested Citation

Fich, Eliezer M. and Rice, Edward M. and Tran, Anh L., Corporate Tax Cuts, Merger Activity, and Shareholder Wealth (March 14, 2017). Available at SSRN: https://ssrn.com/abstract=2933136 or http://dx.doi.org/10.2139/ssrn.2933136

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://www.cass.city.ac.uk/experts/A.Tran

Paper statistics

Downloads
154
Rank
162,310
Abstract Views
541