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Capital gains taxation and shareholder wealth in takeovers
Author(s) -
Bugeja Martin,
Da Silva Rosa Raymond
Publication year - 2010
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.2009.00334.x
Subject(s) - shareholder , taxable income , capital gains tax , business , monetary economics , rollover (web design) , equity (law) , capital (architecture) , shareholder loan , cash , economics , finance , accounting , double taxation , corporate governance , archaeology , non conforming loan , loan , world wide web , computer science , political science , non performing loan , law , ad valorem tax , history
Abstract Before December 1999, the capital gains of shareholders who sold their shares into Australian takeovers have been taxable irrespective of payment method. Subsequently, shareholders can elect to rollover capital gains in equity takeovers. We examine the effect of this change on the association between target shareholder capital gains and bidder and target firm shareholder wealth. The results indicate that prior to the regulatory change, cash consideration results in higher target shareholder returns for non‐taxation reasons. After the introduction of capital gains tax rollover relief, we find that target and acquiring firm shareholders earn lower returns when cash consideration is offered to shareholders with greater capital gains.