Publication Type

Journal Article

Version

Preprint

Publication Date

12-2016

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.

Keywords

tax sheltering, new evidence, non-sheltering status, target non-participation, tax shelter, tax avoidance

Discipline

Accounting | Corporate Finance | Taxation

Research Areas

Financial Performance Analysis; Corporate Reporting and Disclosure

Publication

Contemporary Accounting Research

Volume

33

Issue

4

First Page

1440

Last Page

1472

ISSN

0823-9150

Identifier

10.1111/1911-3846.12226

Publisher

Canadian Academic Accounting Association

Copyright Owner and License

Authors

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

https://doi.org/10.1111/1911-3846.12226

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