Taxing away M&A: The effect of corporate capital gains taxes on acquisition activity

Arbeitspapier

Taxing capital gains is an important obstacle to the efficient allocation of resources because it imposes a transaction cost on the vendor which locks in appreciated assets by raising the vendor's reservation price in prospective transactions. For M&As, this effect has been intensively studied with regard to share-holder taxation, whereas empirical evidence on the effect of capital gains taxes paid by corporations is scarce. This paper analyzes how corporate level taxation of capital gains affects inter-corporate M&As. Studying several substantial tax reforms in a panel of 30 countries for the period of 2002-2013, we identify a significant lock-in effect. Results from estimating a Poisson pseudo-maximum-likelihood (PPML) model suggest that a one percentage point decrease in the corporate capital gains tax rate would raise both the number and the total deal value of acquisitions by about 1.1% per year. We use this result to estimate an efficiency loss resulting from corporate capital gains taxation of 3.06 bn USD per year in the United States.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Freiburger Diskussionspapiere zur Ordnungsökonomik ; No. 16/03

Classification and Topics

• Classification: Wirtschaft ; Business Taxes and Subsidies including sales and value-added (VAT) ; Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
• Subject: corporate taxation ; M&A ; capital gains tax ; lock-in effect

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Feld, Lars P. ; Ruf, Martin ; Schreiber, Ulrich ; Todtenhaupt, Maximilian ; Voget, Johannes
• Event: Veröffentlichung
• (who): Albert-Ludwigs-Universität Freiburg, Institut für Allgemeine Wirtschaftsforschung, Abteilung für Wirtschaftspolitik und Ordnungsökonomik
• (where): Freiburg i. Br.
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/129800
• Last update: 10.03.2025, 11:42 AM CET