Targets Tax Shelter Participation and Takeover Premiums

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...

Full description

Saved in:
Bibliographic Details
Main Authors: CHOW, Travis, KLASSEN, Kenneth J., LIU, Yanju
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2016
Subjects:
Online Access:https://ink.library.smu.edu.sg/soa_research/1510
https://ink.library.smu.edu.sg/context/soa_research/article/2537/viewcontent/TargetTaxShelterPartTakeoverPremiums_2016_afv.pdf
Tags: Add Tag
No Tags, Be the first to tag this record!
Institution: Singapore Management University
Language: English
Description
Summary: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.