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The value of a loss: The impact of restricting tax loss transfers

Author

Listed:
  • Bührle, Anna Theresa
  • Casi-Eberhard, Elisa
  • Stage, Barbara
  • Voget, Johannes

Abstract

We study the economic consequences of anti-loss trafficking rules, which disallow the use of loss carry-forwards as tax shield after a substantial ownership change. Using staggered changes to these rules, we find that limiting the transfer of tax losses reduces the number of M&As with loss-making targets by 22%. We further observe decreases in birth and survival rates of young companies in response to stricter regulations and vice versa. Tightening (loosening) anti-loss trafficking rules impairs (increases) return on assets, especially for R&D-intensive firms, and stricter rules lead to a decrease in successful patent applications.

Suggested Citation

  • Bührle, Anna Theresa & Casi-Eberhard, Elisa & Stage, Barbara & Voget, Johannes, 2023. "The value of a loss: The impact of restricting tax loss transfers," ZEW Discussion Papers 23-037, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:279548
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    More about this item

    Keywords

    Mergers and acquisitions; anti-loss trafficking rules; taxes; market entry; market exit; productivity; innovation;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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