Investors' and Managers' Reactions to Corporate Inversion Transactions
37 Pages Posted: 21 Jan 2003
Date Written: September 5, 2003
We find that abnormal returns around the dates of shareholder approval of corporate inversions are associated with inverting firms' contemporaneous tax attributes. We also document that inverted firms realize substantial reductions in effective tax rates, and that realized changes in tax rates are also associated with shareholder-approval-period abnormal returns. These findings are consistent with the market incorporating inversion-related benefits into stock prices. We also report evidence of a systematic relation in analyst forecast errors around inverting firms' inversion dates that is consistent with managers' incentives to defer income to post-inversion periods. Finally, we provide preliminary evidence suggesting that inverted firms shift income to non-U.S. jurisdictions in post-inversion periods.
Keywords: inversions, corporate expatriations, international tax planning, income shifting
JEL Classification: M41, M43, G12, H20
Suggested Citation: Suggested Citation