Investors' and Managers' Reactions to Corporate Inversion Transactions

37 Pages Posted: 21 Jan 2003

See all articles by Jim A. Seida

Jim A. Seida

University of Notre Dame - Department of Accountancy

William F. Wempe

Texas Christian University - M.J. Neeley School of Business

Date Written: September 5, 2003

Abstract

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

Seida, Jim A. and Wempe, William F., Investors' and Managers' Reactions to Corporate Inversion Transactions (September 5, 2003). Available at SSRN: https://ssrn.com/abstract=359820 or http://dx.doi.org/10.2139/ssrn.359820

Jim A. Seida

University of Notre Dame - Department of Accountancy ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-9496 (Phone)
574-631-5255 (Fax)

William F. Wempe (Contact Author)

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States
817-257-7614 (Phone)
817-257-7227 (Fax)

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