Corporate tax cuts, merger activity, and shareholder wealth

Jennifer L. Blouin, Eliezer M. Fich, Edward M. Rice and Anh Tran

Journal of Accounting and Economics, 2021, vol. 71, issue 1

Abstract: We study the impact of the Domestic Production Activities Deduction (DPAD) on mergers and acquisitions. DPAD reduces corporate tax rates on income from work or goods made in the U.S. Results indicate that the quantity and quality of acquisition bids by DPAD-advantaged firms conform to the predictions of the neoclassical theory of the firm and the theory of financial constraints. Specifically, bids, particularly those cash-financed, increase substantially in industries with large DPAD-related tax cuts and for firms with financial constraints. Moreover, DPAD improves acquisition quality where acquirers and targets are likely to generate incremental DPAD tax benefits through their merger.

Keywords: Corporate tax deduction; Acquisitions; Firm performance; Financial constraints (search for similar items in EconPapers)
JEL-codes: G34 H25 M48 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:71:y:2021:i:1:s0165410120300173

DOI: 10.1016/j.jacceco.2020.101315

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