Private Equity and Taxes

60 Pages Posted: 27 Dec 2018 Last revised: 19 Nov 2019

See all articles by Marcel Olbert

Marcel Olbert

University of Mannheim - Business School

Peter Severin

University of Mannheim

Date Written: November 16, 2019

Abstract

We study companies' tax avoidance behavior after being acquired in a private equity transaction. Exploiting rich European firm-level data in a matched-sample difference-in-differences setting, we find that target companies' effective tax rates decrease by 13 percent. This finding is in line with the hypothesis that private equity investors create shareholder value by extracting money from the government. While our evidence suggests that target firms engage more heavily in profit shifting, we do not find strong evidence for a tax-motivated leverage channel. Target firms experience lower asset and productivity growth when they engage in significant tax avoidance after the deal.

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

JEL Classification: G31, G34, H26

Suggested Citation

Olbert, Marcel and Severin, Peter, Private Equity and Taxes (November 16, 2019). Available at SSRN: https://ssrn.com/abstract=3287687 or http://dx.doi.org/10.2139/ssrn.3287687

Marcel Olbert

University of Mannheim - Business School ( email )

Schloss Ostfl├╝gel
Mannheim, 68131
Germany

Peter Severin (Contact Author)

University of Mannheim

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

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