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The Effects of Changes in Tax Laws on Corporate Reorganization Activity

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  • Scholes, Myron S
  • Wolfson, Mark A

Abstract

The authors present evidence that changes in tax laws passed in the 1980s had a first-order effect on merger and acquisition activity in the United States. They also present evidence of increased reliance on certain institutional arrangements (unit-management buyouts and going-private transactions) that were destined to reduce the nontax costs of reorganization. Their model predicts and their evidence confirms that while the Tax Reform Act of 1986 discouraged transactions among U.S. corporations, it increased the demand for merger and acquisition transactions between U.S. sellers and foreign buyers. Copyright 1990 by the University of Chicago.

Suggested Citation

  • Scholes, Myron S & Wolfson, Mark A, 1990. "The Effects of Changes in Tax Laws on Corporate Reorganization Activity," The Journal of Business, University of Chicago Press, vol. 63(1), pages 141-164, January.
  • Handle: RePEc:ucp:jnlbus:v:63:y:1990:i:1:p:s141-64
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    1. Schipper, Katherine & Thompson, Rex, 1983. "Evidence on the capitalized value of merger activity for acquiring firms," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 85-119, April.
    2. Kenneth A. Froot & Jeremy C. Stein, 1991. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 1191-1217.
    3. Alan J. Auerbach & James M. Poterba, 1987. "Tax-Loss Carryforwards and Corporate Tax Incentives," NBER Chapters, in: Taxes and Capital Formation, pages 89-92, National Bureau of Economic Research, Inc.
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