Taxing away M&A: Capital gains taxation and acquisition activity

Todtenhaupt, Maximilian; Voget, Johannes; Feld, Lars P.; Ruf, Martin and Schreiber, Ulrich (2020): Taxing away M&A: Capital gains taxation and acquisition activity. In: European Economic Review, Vol. 128, 103505

Abstract

Capital gains taxation distorts the market for corporate control by imposing a cost on selling shareholders in acquisitions. This lock-in effect increases premiums required for deal completion preventing some M&As from taking place at all. We estimate the effect of capital gains taxation on the quantity of realized M&A deals and compute the deadweight loss related to taxing these transactions. We find that a one percentage point increase in the capital gains tax rate reduces acquisition activity by around 1% annually. For the United States, this implies unrealized synergy gains of $9.3 billion each year due to capital gains taxes. (c) 2020 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license. (http://creativecommons.org/licenses/by/4.0/ )

• Item Type: Journal article
• Faculties: Economics
• Subjects: 300 Social sciences > 330 Economics
• ISSN: 0014-2921
• Language: English