An Empirical Study of the Consequences of U.S. Tax Rules for International Acquisitions by U.S. Firms

Manzon, Gil B,, David J Sharp and Nickolaos G Travlos

Journal of Finance, 1994, vol. 49, issue 5, 1893-1904

Abstract: This article examines the effect of tax factors on the equity values of U.S. multinational corporations making foreign acquisitions. Abnormal stock returns are found to be related to a tax variable that captures differences in the international tax status of acquiring firms but not related to a naive tax variable that captures differences between tax rates in target countries and the United States. The authors' evidence suggests that aggregate intercountry differentials in after-tax returns are competed away, while firm-specific, tax-related advantages (or disadvantages) are reflected in abnormal returns around the announcement date of the acquisition. Copyright 1994 by American Finance Association.

Date: 1994
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