Capital gains taxation and the cost of capital: Evidence from unanticipated cross-border transfers of tax base

Harry Huizinga, Johannes Voget and Wolf Wagner ()

Journal of Financial Economics, 2018, vol. 129, issue 2, 306-328

Abstract: In a cross-border takeover, the tax base associated with future capital gains is transferred from target shareholders to acquirer shareholders. Cross-country differences in capital gains tax rates enable us to estimate the discount in target valuation on account of future capital gains. We estimate that a 1 percentage point increase in the capital gains tax rate reduces the value of equity by around 0.3%, which suggests that the capital gains tax significantly raises firms’ cost of capital. Furthermore, we find that the implied capital gains tax burden is higher at times of high economic growth and low stock market valuation.

Keywords: Capital gains taxation; Cost of capital; International takeovers; Takeover premium (search for similar items in EconPapers)
JEL-codes: G32 G34 H25 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Capital Gains Taxation and the Cost of Capital: Evidence from Unanticipated Cross-Border Transfers of Tax Bases (2012)
Working Paper: Capital Gains Taxation and the Cost of Capital: Evidence from Unanticipated Cross-Border Transfers of Tax Bases (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:129:y:2018:i:2:p:306-328

DOI: 10.1016/j.jfineco.2018.04.014

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