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Corporate Tax Cuts, Merger Activity, and Shareholder Wealth

Blouin, J., Fich, E. M., Rice, E. and Tran, A. ORCID: 0000-0001-7090-8063 (2020). Corporate Tax Cuts, Merger Activity, and Shareholder Wealth. Journal of Accounting and Economics, 101315.. doi: 10.1016/j.jacceco.2020.101315


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 US. 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.

Publication Type: Article
Additional Information: © 2020. This manuscript version is made available under the CC-BY-NC-ND 4.0 license
Publisher Keywords: Corporate Tax Deduction; Acquisitions; Firm Performance; Financial Constraints
Subjects: H Social Sciences > HG Finance
Departments: Business School > Finance
Date Deposited: 20 Feb 2020 11:30
[img] Text - Accepted Version
This document is not freely accessible until 26 March 2022 due to copyright restrictions.
Available under License Creative Commons Attribution Non-commercial No Derivatives.

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