The Impact of U.S. Tax Reform on U.S. Firm Acquisitions of Domestic and Foreign Targets

50 Pages Posted: 12 Jun 2020

See all articles by T. J. Atwood

T. J. Atwood

University of Arkansas - Department of Accounting

Jimmy Downes

University of Nebraska at Lincoln

Jodi Henley

affiliation not provided to SSRN

Mollie Mathis

affiliation not provided to SSRN

Date Written: May 14, 2020

Abstract

The Tax Cuts and Jobs Act of 2017 (TCJA) eliminated disincentives for U.S. multinational corporations (MNCs) to repatriate foreign subsidiaries’ earnings, but the TCJA included additional provisions that will impact U.S. firms’ acquisition decisions. We find that both the likelihood and number of domestic and foreign acquisition announcements made by U.S. firms decreased on average after the TCJA but increased with repatriation taxes that U.S. MNCs faced prior to the TCJA. This effect is stronger for those MNCs that held larger amounts of foreign cash prior to the TCJA. The post-TCJA increase in foreign target acquisitions is driven by MNCs that are more likely to be subject to the global intangible low-tax income (GILTI) provisions after the TCJA. Our results suggest that the GILTI provisions introduced a contradictory incentive for U.S. MNCs with higher returns from intangible assets to investment in foreign target firms with lower returns on tangible property.

Keywords: Tax Cuts and Jobs Act, Foreign and Domestic Acquisitions, Global intangible low-tax income

JEL Classification: F23, G31, G38, H25, M40, M48

Suggested Citation

Atwood, T. J. and Downes, Jimmy and Henley, Jodi and Mathis, Mollie, The Impact of U.S. Tax Reform on U.S. Firm Acquisitions of Domestic and Foreign Targets (May 14, 2020). Available at SSRN: https://ssrn.com/abstract=3600978 or http://dx.doi.org/10.2139/ssrn.3600978

T. J. Atwood

University of Arkansas - Department of Accounting ( email )

Business Bldg. 454
Fayetteville, AR 72701
United States

Jimmy Downes (Contact Author)

University of Nebraska at Lincoln ( email )

1400 R St
Lincoln, NE 68588
United States

Jodi Henley

affiliation not provided to SSRN

Mollie Mathis

affiliation not provided to SSRN

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