Escape from the USA: Government Debt-to-GDP Ratio, Country Tax Competitiveness, and US-OECD Cross-Border M&As
Journal of International Business Studies, Forthcoming
63 Pages Posted: 10 Jan 2019 Last revised: 24 Mar 2021
Date Written: December 30, 2018
We study how differences in target country-US tax competitiveness influence acquirers’ share price reactions to US cross-border acquisitions, the tax savings after acquisition completion, and the US cross-border acquisition deal flows. We employ two-stage least-squares regressions and use the fitted component of the government-debt-to-GDP ratio difference between the US and a target country as a proxy for the target country-US tax-competitiveness difference. Using a sample of US acquisitions of targets in other OECD countries, in which around one-tenth of the target firms are publicly listed firms while the rest are private and subsidiary firms, our findings suggest that tax arbitrage (a) increases the shareholder wealth of US acquirers and (b) is likely an important driver of US-OECD cross-border acquisition deal flows.
Keywords: government debt-to-GDP ratio; country tax competitiveness; cross-border mergers and acquisitions; tax avoidance; two-stage least-squares regressions
JEL Classification: G34
Suggested Citation: Suggested Citation