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Capital Gains Taxes and Stockholders' Response to Dutch Auction Tender Offers

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  • Kadapakkam, Palani-Rajan
  • Seth, Sarabjeet

Abstract

Capital gains taxes are conjectured to explain upward sloping supply curves in tender offers. This paper analyzes expiration day returns in Dutch auction tender offers to examine this conjecture. A proxy measure for the capital gains of the marginal tendering stockholder is constructed, based on tender offer size and daily price-volume history for one year. Cross-sectional regressions suggest that the tender price increases with the capital gains of the marginal tenderer, but only for firms with low institutional holdings. This is consistent with capital gains tax effects being relevant only when tax-exempt holdings are low. Copyright 1997 by MIT Press.

Suggested Citation

  • Kadapakkam, Palani-Rajan & Seth, Sarabjeet, 1997. "Capital Gains Taxes and Stockholders' Response to Dutch Auction Tender Offers," The Financial Review, Eastern Finance Association, vol. 32(4), pages 779-799, November.
  • Handle: RePEc:bla:finrev:v:32:y:1997:i:4:p:779-99
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    Cited by:

    1. Mohammadali Fallah & Palani‐Rajan Kadapakkam, 2023. "Long‐term capital gains taxes and stock prices: Evidence from India," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 3033-3054, July.

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