The Motivation for Inversion

Abstract

It is obvious who loses from inversion of a U.S firm - the U.S government, which loses future tax income. However, the complementary question- who benefits from inversion and consequently why do inversions occur, does not have a clear answer. We examine the effect of inversion on four entities: The shareholders, bondholders and executives of the inverted firm; and Shareholders of the target firm (if the inversion was done through merger inversion). Our findings indicate that the executives benefit from inversion while the stakeholders of the inverted firm do not. In addition, we find that the shareholders of the target firms benefit from inversion. Considering the size of the firms, the implications on the U.S tax revenues and that previous regulations attempts did not deter inversion transactions, we believe that these findings have policy implications.

Keywords: Corporate governance, Value of firms, Government and Regulations, mergers and Acquisions, Payout Policy

JEL Classification: G32, G34, G35, G38