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Taxes and the Merger Decision: An Empirical Analysis

  • Alan J. Auerbach
  • David Reishus

One motive that is often cited for merger activity is the avoidance of federal income taxes by corporations and their shareholders. Yet there is little empirical evidence on the tax consequences of merger activity, or on the postmerger effects on firm policies of tax motivated mergers. In this paper, we present some initial results based on a large sample of mergers and acquisitions that occurred over the period 1968-83. We find that, in about one fifth of all mergers, there was a potential gain from the transfer of unused tax losses and credits, with an average value of approximately ten percent of the acquired company's market value. Other tax incentives to merge are also measured, but found to be less important quantitatively.

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File URL: http://www.nber.org/papers/w1855.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1855.

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Date of creation: Mar 1986
Date of revision:
Publication status: published as Coffee, J., L. Lowenstein, and S. Rose-Ackerman (eds.) Knights, Raiders and Targets. New York, NY: Oxford University Press, 1988.
Handle: RePEc:nbr:nberwo:1855
Note: PE
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  1. Auerbach, Alan J, 1981. "Inflation and the Tax Treatment of Firm Behavior," American Economic Review, American Economic Association, vol. 71(2), pages 419-23, May.
  2. Alan J. Auerbach & James R. Hines Jr., 1986. "Tax Reform, Investment, and the Value of the Firm," NBER Working Papers 1803, National Bureau of Economic Research, Inc.
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