Ownership Efficiency and Tax Advantages: The Case of Private Equity Buyouts
AbstractCommentators on the private equity industry often claim that favorable tax treatment gives private equity firms advantages in the market for corporate control. But we show that tax advantages do not affect the equilibrium ownership of corporate assets when acquisition costs are fully deductible since buyers' valuations of assets are then independent of taxes. However, tax advantages are of importance under limited bidding competition, limited deductibility and in the presence of oligopolistic externalities in the product market. We also show that from an efficiency perspective, there are too many acquisitions in a double taxation system because acquisitions create deductions for buyers that are not available to sellers.
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Bibliographic InfoPaper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 841.
Length: 32 pages
Date of creation: 11 Jun 2010
Date of revision:
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Capital Gains Tax; Corporate Tax; Ownership Efficiency; Private Equity; Buyouts; LBOs; M&As;
Find related papers by JEL classification:
- D20 - Microeconomics - - Production and Organizations - - - General
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ACC-2010-07-03 (Accounting & Auditing)
- NEP-ALL-2010-07-03 (All new papers)
- NEP-FMK-2010-07-03 (Financial Markets)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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