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An Empirical Study of the Consequences of U.S. Tax Rules for International Acquisitions by U.S. Firms
Author(s) -
MANZON GIL B.,
SHARP DAVID J.,
TRAVLOS NICKOLAOS G.
Publication year - 1994
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1994.tb04786.x
Subject(s) - multinational corporation , monetary economics , economics , equity (law) , corporate tax , stock (firearms) , business , tax avoidance , value added tax , financial economics , public economics , finance , political science , geography , archaeology , law
This article examines the effect of tax factors on the equity values of U.S. multinational corporations making foreign acquisitions. Abnormal stock returns are found to be related to a tax variable that captures differences in the international tax status of acquiring firms but not related to a naive tax variable that captures differences between tax rates in target countries and the United States. Our evidence suggests that aggregate intercountry differentials in after‐tax returns are competed away, while firm‐specific, tax‐related advantages (or disadvantages) are reflected in abnormal returns around the announcement date of the acquisition.