Capital Gains Taxation and the Cost of Capital: Evidence from Unanticipated Cross-Border Transfers of Tax Bases

Harry Huizinga, Wolf Wagner () and Johannes Voget

No 9151, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In a cross-border takeover, the tax base associated with future capital gains is transferred from target shareholders to acquirer shareholders. Cross-country differences in capital gains tax rates enable us to estimate the discount in target valuation on account of future capital gains. A one percentage point increase in the capital gains tax rate reduces the value of equity by 0.225%. The implied average effective tax rate on capital gains is 7% and it raises the cost of capital by 5.3% of its no-tax level. This indicates that capital gains taxation is a significant cost to firms when issuing new equity.

Keywords: Capital gains taxation; Cost of capital; International takeovers; Takeover premium (search for similar items in EconPapers)
JEL-codes: G32 G34 H25 (search for similar items in EconPapers)
Date: 2012-09
New Economics Papers: this item is included in nep-pbe
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Capital gains taxation and the cost of capital: Evidence from unanticipated cross-border transfers of tax base (2018)
Working Paper: Capital Gains Taxation and the Cost of Capital: Evidence from Unanticipated Cross-Border Transfers of Tax Bases (2012)
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