The Initial Effect of U.S. Tax Reform on Foreign Acquisitions

Posted: 28 May 2020 Last revised: 7 Feb 2023

See all articles by Harald Amberger

Harald Amberger

Vienna University of Economics and Business

Leslie A. Robinson

Dartmouth College - Tuck School of Business; Dartmouth College - Accounting

Date Written: February 6, 2023

Abstract

The Tax Cuts and Jobs Act (TCJA) of 2017 marked a significant change in U.S. domestic and international tax policy, altering incentives for U.S. firms to own foreign assets. We examine the initial response of U.S. firms’ foreign acquisition patterns to the TCJA’s key reform provisions. We find a significant overall decrease in the probability that a foreign target is acquired by a U.S. firm after the reform, suggesting that the net effect of the TCJA was to reduce acquisitions abroad. Cross-sectional variation across target and acquirer characteristics points to the elimination of the repatriation tax and the TCJA’s global intangible low-taxed income (GILTI) regime as critically influencing cross-border acquisitions by U.S. firms. Specifically, U.S. acquirers with little foreign presence prior to the TCJA are more likely to acquire a foreign target, while U.S. acquirers are less likely to acquire profitable targets in low-tax countries. Results from our empirical analyses are consistent with the TCJA prompting fewer but more value-enhancing, less tax-motivated foreign acquisitions by U.S. firms.

Keywords: Tax Cuts and Jobs Act, Mergers and Acquisitions, Investment, Repatriation Tax, GILTI, FDII

JEL Classification: G34, H25, H32, K34, M21, M41

Suggested Citation

Amberger, Harald Johannes and Robinson, Leslie, The Initial Effect of U.S. Tax Reform on Foreign Acquisitions (February 6, 2023). Review of Accounting Studies, Forthcoming, WU International Taxation Research Paper Series No. 2020-06, Tuck School of Business Working Paper No. 3612783, Available at SSRN: https://ssrn.com/abstract=3612783 or http://dx.doi.org/10.2139/ssrn.3612783

Harald Johannes Amberger

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Leslie Robinson (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Dartmouth College - Accounting ( email )

100 Tuck Hall
Hanover, NH 03755
United States
603-646-4018 (Phone)

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