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Taxes, corporate takeovers, and step transactions

Author

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  • Kazuki Onji

    (Graduate School of Economics, Osaka University)

  • Roger H. Gordon

Abstract

Taxes affect the size of a corporate takeover market in theory; the extant empirical studies from the US data offer limited such evidence. We consider Japan after 2001, which offers an alternative setting in which a tax system implicitly subsidizes mergers that follow a particular sequence of steps ("step transactions"). We construct a novel dataset on step transactions from a list of takeover deals from 1996 through 2013 and examine their utilization rates before and after Japan's tax reform of 2001. We find a statistically and economically significant discontinuity across the two regimes. We also examine tax payments using a panel dataset of firms from 1997 through 2013 and find a strong association between unexplained falls in tax payments and step transactions. The Japanese tax system provided subsidies to marginal as well as infra-marginal mergers among domestic corporations: we estimate tax expenditure to be \172.3 billion.

Suggested Citation

  • Kazuki Onji & Roger H. Gordon, 2021. "Taxes, corporate takeovers, and step transactions," Discussion Papers in Economics and Business 21-16, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:2116
    as

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    File URL: http://www2.econ.osaka-u.ac.jp/econ_society/dp/2116.pdf
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    References listed on IDEAS

    as
    1. David S. Lee & Thomas Lemieux, 2010. "Regression Discontinuity Designs in Economics," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 281-355, June.
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    More about this item

    Keywords

    Tax Avoidance; M&A; Corporate Restructuring;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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