An Empirical Study of the Consequences of U.S. Tax Rules for International Acquisitions by U.S. Firms

This article examines the effect of tax factors on the equity values of U.S. multinational corporations making foreign acquisitions. Abnormal stock returns are found to be related to a tax variable that captures differences in the international tax status of acquiring firms but not related to a naive tax variable that captures differences between tax rates in target countries and the United States. Our evidence suggests that aggregate intercountry differentials in after-tax returns are competed away, while firm-specific, tax-related advantages (or disadvantages) are reflected in abnormal returns around the announcement date of the acquisition.