Taxes and Mergers: Evidence from Banks During the Financial Crisis
44 Pages Posted: 23 May 2018
Date Written: May 18, 2018
At the peak of the financial crisis the IRS issued Notice 2008-83, administrative guidance that curtailed a tax rule designed to discourage tax-motivated acquisitions. The Notice increased the value to potential acquirors of tax assets of commercial banks that would have otherwise been impaired if the bank changed ownership. We find little evidence that the Notice affected bank merger activity, but we do find that mergers that occurred while the Notice was in effect had lower post-merger income growth. We also find evidence consistent with the strategic recognition of tax losses to exploit the benefits of the Notice.
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