M&A and the tax benefits of debt-financing

Uwe Scheuering

No 14-019, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: The deductibility of interest expenses from the corporate tax base creates an incentive for acquiring companies to finance a takeover with debt. In this paper, I investigate the impact of profit taxation on the financing decision in corporate acquisitions for the first time for a sample of different acquirer-countries mainly in Europe. The likelihood to observe a debt-financed acquisition is found to increase in the acquirer's tax rate. In addition, I take into account that the financing decisions of particular acquisitions might not be independent from other investment decisions. Therefore, I analyze the acquirer's capital structure development around the acquisition and find an increase in the statutory tax rate by one %-point to be associated with a stronger increase in the debt ratio by 0.55 %-points during the acquisition period.

Keywords: M&A; Business Taxation; Capital Structure; Empirical Analysis (search for similar items in EconPapers)
JEL-codes: G34 H25 H32 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
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https://www.econstor.eu/bitstream/10419/94350/1/781529727.pdf (application/pdf)

Related works:
Working Paper: M&A and the Tax Benefits of Debt Financing (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:14019

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