Published in:Rotman School of Management Working Paper ; No. 2550819
Extent:
1 Online-Ressource (48 p)
Language:
English
DOI:
10.2139/ssrn.2550819
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments May 5, 2017 erstellt
Description:
Prior research has documented a substantial “lockout” effect resulting from the current U.S. worldwide tax and financial reporting systems. We hypothesize that foreign firms are tax- favored acquirers because they can avoid the U.S. tax on repatriations. Consistent with this tax advantage, we find that U.S. domiciled M&A target firms with greater locked-out earnings are more likely to be acquired by foreign than domestic acquirers. This effect is economically significant; a standard deviation increase in our proxy for locked-out earnings is associated with a 12% relative increase in the likelihood that an acquirer is foreign. As the tax advantages for a foreign firm acquiring a U.S. target with locked-out earnings are even greater when the foreign firm operates under a territorial tax system, we also compare their home country tax system. We find that foreign acquirers of U.S. target firms with locked-out earnings are indeed more likely to be residents of countries that use territorial tax systems