The Role of Toeholds and Capital Gain Taxes for Corporate Acquisition Strategies

Michael Stimmelmayr, Federica Liberini and Antonio Russo

VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

Abstract: Ownership takeovers often follow complex strategies where the control of the target firm is acquired through a sequence of independent contracts. We study the role of capital gain taxes on the contract structure and on the method of finance of merger and acquisitions (M&As). We find that capital gain taxes discourage cash-to-stock transactions and that this effect is stronger in sequential acquisitions. In addition, we show that capital gain taxes promote sequential acquisitions and thus carry a beneficial welfare effect by avoiding the waste of productive resources due to unprofitable mergers. We provide empirical support for the model predictions by estimating a bivariate probit on a sample of acquisition contracts collected from the Thomson Financial SDC database.

JEL-codes: C35 G34 H25 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-acc, nep-cse and nep-dcm
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Related works:
Working Paper: The Role of Toeholds and Capital Gains Taxes for Corporate Acquisition Strategies (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc15:112926

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