Taxation of shareholder capital gains and the choice of payment method in takeovers |
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Authors: | Martin Bugeja Raymond da Silva Rosa |
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Institution: | 1. Discipline of Accounting , University of Sydney Business School , 2006, New South Wales, Australia Phone: +61 2 9351 3079 Fax: +61 2 9351 3079 E-mail: m.bugeja@econ.usyd.edu.au;2. Business School , University of Western Australia |
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Abstract: | From December 1999, shareholders who disposed of shares in Australian takeovers in exchange for scrip could elect to defer capital gains taxation until the disposal of the shares received. We investigate payment method choice by acquiring firms before and after this regulatory change to assess whether target shareholder capital gains tax liabilities became an important factor considered in choosing the form of payment. The results show that, subsequent to the regulatory change, there is a significantly higher probability that equity will be offered as consideration where target shareholder capital gains are greater. This finding confirms the importance of shareholder level taxation in explaining corporate acquisition structure and adds to previous European and US evidence on factors associated with payment method choice in takeovers. |
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Keywords: | capital gains taxation mergers and acquisitions method of payment |
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