Corporate tax cuts,merger activity,and shareholder wealth |
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| Authors: | Jennifer L Blouin Eliezer M Fich Edward M Rice Anh L Tran |
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| Institution: | 1. The Wharton School, University of Pennsylvania, Philadelphia, PA, 19104, USA;2. LeBow College of Business, Drexel University, Philadelphia, PA, 19104, USA;3. Foster School of Business, University of Washington, Seattle, WA, 98195, USA;4. Cass Business School, City, University of London, London, EC1Y 8TZ, UK |
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| Abstract: | We study the impact of the Domestic Production Activities Deduction (DPAD) on mergers and acquisitions. DPAD reduces corporate tax rates on income from work or goods made in the U.S. Results indicate that the quantity and quality of acquisition bids by DPAD-advantaged firms conform to the predictions of the neoclassical theory of the firm and the theory of financial constraints. Specifically, bids, particularly those cash-financed, increase substantially in industries with large DPAD-related tax cuts and for firms with financial constraints. Moreover, DPAD improves acquisition quality where acquirers and targets are likely to generate incremental DPAD tax benefits through their merger. |
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| Keywords: | Corporate tax deduction Acquisitions Firm performance Financial constraints G34 H25 M48 |
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