EconPapers    
Economics at your fingertips  
 

Stockholder Wealth Effects of Corporate Inversions: Is It just Tax or Does Governance Matter too?

Madhuparna Kolay ()
Additional contact information
Madhuparna Kolay: Dr. Robert B. Pamplin Jr. School of Business Administration, University of Portland, U.S.A.

Review of Economics & Finance, 2018, vol. 14, 83-97

Abstract: This study investigates the effects of governance on stockholder wealth effects when a firm announces its intention to invert. Using a sample of 59 inversions during the period 1994 to 2014, we find that irrespective of the type of inversion and other firm characteristics, stockholders gain when the new country of incorporation has stronger country-level governance. Gains also vary significantly with the nature of the inversion: firms which invert purely for tax-related reasons without any intention to merge with another firm experience negative stockholder wealth effects. In addition to the cross-sectional tests, this study also uses Mylan¡¯s inversion and subsequent events as an example to show that stockholders are indeed affected by whether or not a firm reincorporates in a jurisdiction with weaker stockholder rights protection. Such weaker protection insulated Mylan¡¯s management from removal and cost shareholders significantly by allowing it to successfully reject a takeover attempt by Teva. Therefore, stockholders would need to evaluate the benefits from inversion in the form of tax savings against the potential costs arising from weaker corporate governance.

Keywords: Corporate inversions; Taxes; Corporate governance; Corporate restructuring (search for similar items in EconPapers)
JEL-codes: G30 G32 G34 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.bapress.ca/ref/ref-article/1923-7529-2018-04-83-15.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bap:journl:180407

Ordering information: This journal article can be ordered from
17 Alton Towers Circle, Unit 101 Toronto, ON, M1V3L8, Canada

Access Statistics for this article

Review of Economics & Finance is currently edited by H. Carlson

More articles in Review of Economics & Finance from Better Advances Press, Canada 17 Alton Towers Circle, Unit 101 Toronto, ON, M1V3L8, Canada.
Bibliographic data for series maintained by Carlson ().

 
Page updated 2018-12-01
Handle: RePEc:bap:journl:180407