Taxes, corporate takeovers, and step transactions

Kazuki Onji and Roger Gordon ()

No 21-16, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: Taxes affect the size of a corporate takeover market in theory; the extant empirical studies from the US data offer limited such evidence. We consider Japan after 2001, which offers an alternative setting in which a tax system implicitly subsidizes mergers that follow a particular sequence of steps ("step transactions"). We construct a novel dataset on step transactions from a list of takeover deals from 1996 through 2013 and examine their utilization rates before and after Japan's tax reform of 2001. We find a statistically and economically significant discontinuity across the two regimes. We also examine tax payments using a panel dataset of firms from 1997 through 2013 and find a strong association between unexplained falls in tax payments and step transactions. The Japanese tax system provided subsidies to marginal as well as infra-marginal mergers among domestic corporations: we estimate tax expenditure to be \172.3 billion.

Keywords: Tax Avoidance; M&A; Corporate Restructuring (search for similar items in EconPapers)
JEL-codes: G34 H25 H26 H32 (search for similar items in EconPapers)
Pages: 58pages
Date: 2021-11
New Economics Papers: this item is included in nep-cfn, nep-com, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:osk:wpaper:2116

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