Taxing away M&A: Capital gains taxation and acquisition activity

Maximilian Todtenhaupt, Johannes Voget, Lars Feld, Martin Ruf and Ulrich Schreiber

European Economic Review, 2020, vol. 128, issue C

Abstract: Capital gains taxation distorts the market for corporate control by imposing a cost on selling shareholders in acquisitions. This lock-in effect increases premiums required for deal completion preventing some M&As from taking place at all. We estimate the effect of capital gains taxation on the quantity of realized M&A deals and compute the deadweight loss related to taxing these transactions. We find that a one percentage point increase in the capital gains tax rate reduces acquisition activity by around 1% annually. For the United States, this implies unrealized synergy gains of $9.3 billion each year due to capital gains taxes.

Keywords: M&A; Lock-in effect; Capital gains tax (search for similar items in EconPapers)
JEL-codes: G34 H25 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:128:y:2020:i:c:s0014292120301367

DOI: 10.1016/j.euroecorev.2020.103505

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