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Targets' Tax Shelter Participation and Takeover Premiums

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  • Travis Chow
  • Kenneth J. Klassen
  • Yanju Liu

Abstract

This paper examines the effect of targets' participation in tax shelters on takeover premiums in mergers and acquisitions. Using a novel data set in which targets disclose that they have not participated in tax shelters, we find that targets that make this statement in their merger filings are associated with 4.6 percent higher takeover premiums, on average. These findings suggest that acquirers are concerned about the potential future liabilities when targets have engaged in tax sheltering. Consistent with this interpretation, the results also indicate that the positive association between targets' nonsheltering disclosure and acquisition premiums is stronger for less tax†aggressive acquirers. This paper demonstrates the importance of targets' aggressive tax positions in the determination of premiums offered to targets' shareholders.Les auteurs s'intéressent à l'incidence du recours des sociétés cibles aux abris fiscaux sur les primes de prise de contrôle dans les opérations de fusion et d'acquisition. Étudiant un ensemble inédit de données dans lequel les sociétés cibles indiquent ne pas avoir eu recours à des abris fiscaux, les auteurs constatent que les sociétés cibles qui mentionnent cette abstention dans les documents à produire relatifs à la fusion sont associées à des primes de prise de contrôle supérieures de 4,6 pour cent, en moyenne. Ces observations semblent indiquer que les acquéreurs sont préoccupés par les obligations potentielles futures lorsque les sociétés cibles ont eu recours à des abris fiscaux. Conformément à cette interprétation, les résultats de l’étude révèlent également que le lien positif entre la mention des sociétés cibles quant à leur abstention de recourir aux abris fiscaux et les primes d'acquisition est plus marqué dans le cas des acquéreurs moins audacieux dans leurs positions fiscales. Les auteurs démontrent l'importance de l'audace des positions fiscales des sociétés cibles dans la détermination des primes offertes aux actionnaires des sociétés cibles.

Suggested Citation

  • Travis Chow & Kenneth J. Klassen & Yanju Liu, 2016. "Targets' Tax Shelter Participation and Takeover Premiums," Contemporary Accounting Research, John Wiley & Sons, vol. 33(4), pages 1440-1472, December.
  • Handle: RePEc:wly:coacre:v:33:y:2016:i:4:p:1440-1472
    DOI: 10.1111/1911-3846.12226
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    Cited by:

    1. Denis Cormier & Daniel Coulombe & Luania Gomez Gutierrez & Bruce J. Mcconomy, 2018. "Firms in Transition: A Review of the Venture Capital, IPO, and M&A Literature," Accounting Perspectives, John Wiley & Sons, vol. 17(1), pages 9-88, March.
    2. Xia Chen & Qiang Cheng & Travis Chow & Yanju Liu, 2021. "Corporate In‐house Tax Departments," Contemporary Accounting Research, John Wiley & Sons, vol. 38(1), pages 443-482, March.
    3. Ralf Bebenroth & Kashif Ahmed, 2021. "Japanese firms' overpayments for cross‐border acquisitions," International Finance, Wiley Blackwell, vol. 24(2), pages 257-273, August.
    4. Li, Qin & Ma, Mark (Shuai) & Shevlin, Terry, 2021. "The effect of tax avoidance crackdown on corporate innovation," Journal of Accounting and Economics, Elsevier, vol. 71(2).
    5. Chen, Jie & Mishra, Tapas & Song, Wei & Zhang, Qingjing & Zhang, Zhuang, 2024. "The impact of bank mergers on corporate tax aggressiveness," Journal of Corporate Finance, Elsevier, vol. 84(C).

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