Private Equity and Taxes

64 Pages Posted: 27 Dec 2018 Last revised: 17 Sep 2020

See all articles by Marcel Olbert

Marcel Olbert

London Business School - Department of Accounting; ZEW – Leibniz Centre for European Economic Research - Corporate Taxation and Public Finance Research

Peter Severin

University of Mannheim

Date Written: September 15, 2020

Abstract

We study corporate tax avoidance and associated real effects of private equity buyouts.
Exploiting over 10,000 deals and private firm data in Europe, we document that target firms' effective tax rates decrease by 13% after the transaction. Those targets engaging in significant post-deal tax avoidance exhibit lower asset, employment, and productivity growth, but have higher payout ratios. Further tests show that buyouts induce more profit shifting and higher leverage, which erodes tax bases in high-tax countries. Collectively, our findings suggest that some private equity investors create shareholder value while imposing a negative externality on governments as tax savings accrue to global shareholders.

Keywords: Private Equity, Leveraged Buyouts, Corporate Taxation, Investments, Productivity, Profit Shifting, Leverage

JEL Classification: G31, G34, H26

Suggested Citation

Olbert, Marcel and Severin, Peter, Private Equity and Taxes (September 15, 2020). Available at SSRN: https://ssrn.com/abstract=3287687 or http://dx.doi.org/10.2139/ssrn.3287687

Marcel Olbert

London Business School - Department of Accounting ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom

ZEW – Leibniz Centre for European Economic Research - Corporate Taxation and Public Finance Research ( email )

United States

Peter Severin (Contact Author)

University of Mannheim

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

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