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Corporate inversion, cost of equity and ineffective tax reform

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  • Liu Hong
  • Tianpeng Zhou

Abstract

US multinational firms typically invert either through a pure form or by merging with foreign entities. Our research documents that pure inversions increase inverting firms' cost of equity, while merger inversions decrease it. These results remain robust across different measures of the cost of equity. We also demonstrate that the 2004 tax reform is ineffective in reducing US multinational firms' tendency to invert. Instead, it prompts firms to shift from pure inversions to merger inversions, which are less value‐enhancing due to their lower tax benefits. It is unlikely that the legislators had foreseen these outcomes.

Suggested Citation

  • Liu Hong & Tianpeng Zhou, 2024. "Corporate inversion, cost of equity and ineffective tax reform," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(4), pages 3595-3622, December.
    • Handle: RePEc:bla:acctfi:v:64:y:2024:i:4:p:3595-3622
    DOI: 10.1111/acfi.13264
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