Publication Type
Journal Article
Version
submittedVersion
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
Corporate Reporting and Disclosure; Financial Performance Analysis
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
Citation
CHOW, Travis; KLASSEN, Kenneth J.; and LIU, Yanju.
Targets Tax Shelter Participation and Takeover Premiums. (2016). Contemporary Accounting Research. 33, (4), 1440-1472.
Available at: https://ink.library.smu.edu.sg/soa_research/1510
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1111/1911-3846.12226
Included in
Accounting Commons, Corporate Finance Commons, Taxation Commons