Escape from the USA: Government Debt-to-GDP Ratio, Country Tax Competitiveness, and US-OECD Cross-Border M&As

Journal of International Business Studies, Forthcoming

Posted: 10 Jan 2019

See all articles by Ying Gan

Ying Gan

Erasmus University Rotterdam - Erasmus School of Economics; Erasmus Research Institute of Management (ERIM)

Buhui Qiu

University of Sydney Business School; Financial Research Network (FIRN)

Date Written: December 30, 2018

Abstract

We study how differences in target country-US tax competitiveness influence acquirers’ share price reactions to US cross-border acquisitions, the tax savings after acquisition completion, and the US cross-border acquisition deal flows. We employ two-stage least-squares regressions and use the fitted component of the government-debt-to-GDP ratio difference between the US and a target country as a proxy for the target country-US tax-competitiveness difference. Using a sample of US acquisitions of targets in other OECD countries, in which around one-tenth of the target firms are publicly listed firms while the rest are private and subsidiary firms, our findings suggest that tax arbitrage (a) increases the shareholder wealth of US acquirers and (b) is likely an important driver of US-OECD cross-border acquisition deal flows.

Keywords: government debt-to-GDP ratio; country tax competitiveness; cross-border mergers and acquisitions; tax avoidance; two-stage least-squares regressions

JEL Classification: G34

Suggested Citation

Gan, Ying and Qiu, Buhui, Escape from the USA: Government Debt-to-GDP Ratio, Country Tax Competitiveness, and US-OECD Cross-Border M&As (December 30, 2018). Journal of International Business Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3308222

Ying Gan

Erasmus University Rotterdam - Erasmus School of Economics ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Buhui Qiu (Contact Author)

University of Sydney Business School ( email )

Room 513, The Codrington Building
The University of Sydney
Sydney, NSW 2006
Australia
+61 2 9036 6435 (Phone)
+61 2 9351 6461 (Fax)

HOME PAGE: http://sydney.edu.au/business/staff/buhuiq

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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