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Long-term tax strategy and corporate acquisition payment structure: An analysis based on the book-tax tradeoff theory

Author

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  • Chan, K. Hung
  • He, Miao
  • Mo, Phyllis Lai Lan
  • Zhang, Weiyin

Abstract

This study examines the relationship between corporate acquirers’ long-term tax strategy (i.e., past behavior) and their subsequent choice of an acquisition payment method (i.e., future behavior) based on a book-tax tradeoff analysis. We find that acquirers with a high (low) level of long-term tax avoidance are more likely to have cash (stock)-financed acquisitions. Political influence attenuates the significance of the above relationship. Among the acquirers who use cash-financed payment method, those who are less tax aggressive tend to include debt to finance their acquisitions, suggesting that debt and non-debt tax shields are substitutes for each other in acquisitions.

Suggested Citation

  • Chan, K. Hung & He, Miao & Mo, Phyllis Lai Lan & Zhang, Weiyin, 2024. "Long-term tax strategy and corporate acquisition payment structure: An analysis based on the book-tax tradeoff theory," Journal of Contemporary Accounting and Economics, Elsevier, vol. 20(3).
    • Handle: RePEc:eee:jocaae:v:20:y:2024:i:3:s1815566924000420
    DOI: 10.1016/j.jcae.2024.100442
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    Keywords

    Book-tax tradeoff theory; Corporate acquisition payment structure; Long-term tax avoidance; Political influence;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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