Taxes and the Merger Decision: an Empirical Analysis

38 Pages Posted: 4 Jul 2004 Last revised: 4 Apr 2015

See all articles by Alan J. Auerbach

Alan J. Auerbach

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

David Reishus

Compass Lexecon - Harvard Square Office

Date Written: March 1986

Abstract

One motive that is often cited for merger activity is the avoidance of federal income taxes by corporations and their shareholders. Yet there is little empirical evidence on the tax consequences of merger activity, or on the postmerger effects on firm policies of tax motivated mergers. In this paper, we present some initial results based on a large sample of mergers and acquisitions that occurred over the period 1968-83. We find that, in about one fifth of all mergers, there was a potential gain from the transfer of unused tax losses and credits, with an average value of approximately ten percent of the acquired company's market value. Other tax incentives to merge are also measured, but found to be less important quantitatively.

Suggested Citation

Auerbach, Alan Jeffrey and Reishus, David, Taxes and the Merger Decision: an Empirical Analysis (March 1986). NBER Working Paper No. w1855. Available at SSRN: https://ssrn.com/abstract=315981

Alan Jeffrey Auerbach (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-643-0711 (Phone)
510-643-0413 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

David Reishus

Compass Lexecon - Harvard Square Office

One Mifflin Place
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
59
Abstract Views
1,164
rank
362,923
PlumX Metrics