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

56 Pages Posted: 28 May 2020 Last revised: 1 Nov 2021

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: October 29, 2021

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 investment abroad. Cross-sectional variation across target and acquirer characteristics points to the TCJA’s Global Intangible Low-Taxed Income (GILTI) regime and the elimination of the repatriation tax as playing a critical role in 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 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 M&A deals by U.S. firms.

Keywords: TCJA, acquisitions, tax reform, repatriation taxes, M&A, international tax

JEL Classification: H25, H20, G34

Suggested Citation

Amberger, Harald Johannes and Robinson, Leslie, The Inital Effect of U.S. Tax Reform on Foreign Acquisitions (October 29, 2021). 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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