The Real Effects of International Tax Planning Incentives: Evidence from Domestic Acquisitions

• In Event: U.S. Related Studies

Abstract

We examine whether and how the tax haven subsidiary profiles of U.S. acquirers and targets affect M&A pairing. Using disclosed material subsidiary data, we develop two measures of tax haven subsidiary relatedness between the acquirer and its target. Examining the associations of these measures with the probability of merger pair formation, the results suggest that acquirers are more likely to select targets whose subsidiaries are located in tax havens similar to their own, consistent with the economies of scale in tax planning hypothesis. Our research suggests that firms’ past tax planning has a significant effect on their real corporate decisions.

Authors

• Travis Chow, Singapore Management University

• Kenneth J Klassen, University of Waterloo