The initial effect of U.S. tax reform on foreign acquisitions

Harald J. Amberger () and Leslie Robinson ()
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Harald J. Amberger: Vienna University of Economics and Business
Leslie Robinson: Tuck School of Business at Dartmouth College

Review of Accounting Studies, 2024, vol. 29, issue 2, No 2, 996-1038

Abstract: Abstract The Tax Cuts and Jobs Act (TCJA) of 2017 marked a significant change in U.S. domestic and international tax policy, altering incentives for U.S. firms to own foreign assets. We examine the initial response of U.S. firms’ foreign acquisition patterns to the TCJA’s key reform provisions. We find a significant overall decrease in the probability that a foreign target is acquired by a U.S. firm after the reform, suggesting that the net effect of the TCJA was to reduce acquisitions abroad. Cross-sectional variation across target and acquirer characteristics points to the elimination of the repatriation tax and the TCJA’s global intangible low-taxed income (GILTI) regime as critically influencing cross-border acquisitions by U.S. firms. Specifically, U.S. acquirers with little foreign presence prior to the TCJA are more likely to acquire a foreign target, while U.S. acquirers are less likely to acquire profitable targets in low-tax countries. Results from our empirical analyses are consistent with the TCJA prompting fewer but more value-enhancing, less tax-motivated foreign acquisitions by U.S. firms.

Keywords: Tax Cuts and Jobs Act; Mergers and acquisitions; Investment; Repatriation Tax; GILTI; FDII (search for similar items in EconPapers)
JEL-codes: G34 H25 H32 K34 M21 M41 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11142-023-09760-1

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