Title

Anticipated tax planning as a source of merger gains

Publication Type

Conference Paper

Publication Date

12-2014

Abstract

This paper investigates anticipated tax planning as an underlying source of value creation for acquirers’ shareholders. We hypothesize that merger announcement returns for acquirers reflect their shareholders’ beliefs about the future tax planning performance of the merged firm. Our analyses show that, in acquisitions of more tax aggressive targets by less tax aggressive acquirers, acquirers’ merger announcement abnormal returns decrease as the tax aggressiveness of the acquirer decreases relative to that of the target. For acquisitions of less tax aggressive targets by more tax aggressive acquirers, acquirers’ merger announcement abnormal returns increase as the tax aggressiveness of the acquirer increases relative to that of the target, but is only observable when omitting deals in either extreme decile of the targets’ tax aggressiveness. These findings suggest that the market expects the target to adopt the acquirer’s tax planning rather than benefiting from the more aggressive planning of either party, and that the anticipated tax planning changes are positively associated with acquirer returns. Further, the results suggest that the merged firm’s overall tax planning is easier to reduce than increase through the acquisition.

Keywords

Tax Aggressiveness, Mergers and Acquisitions

Discipline

Accounting | Finance and Financial Management

Research Areas

Financial Performance Analysis

Publication

Auckland Finance Meeting 2014, December 18-20

First Page

1

Last Page

46

City or Country

Auckland

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