NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Taxes and the Merger Decision: An Empirical Analysis

Alan J. Auerbach, David Reishus

NBER Working Paper No. 1855
Issued in March 1986
NBER Program(s):   PE

One motive that is often cited for merger activity is the avoidance of federal income taxes by corporations and their shareholders. Yet there is little empirical evidence on the tax consequences of merger activity, or on the postmerger effects on firm policies of tax motivated mergers. In this paper, we present some initial results based on a large sample of mergers and acquisitions that occurred over the period 1968-83. We find that, in about one fifth of all mergers, there was a potential gain from the transfer of unused tax losses and credits, with an average value of approximately ten percent of the acquired company's market value. Other tax incentives to merge are also measured, but found to be less important quantitatively.

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Document Object Identifier (DOI): 10.3386/w1855

Published: Coffee, J., L. Lowenstein, and S. Rose-Ackerman (eds.) Knights, Raiders and Targets. New York, NY: Oxford University Press, 1988.

 
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