Do Taxes Affect the Use of Debt in Financing Corporate Acquisitions?
42 Pages Posted: 7 Mar 2002
Date Written: February 2002
Abstract
We examine the influence of taxes on U.S. corporations' methods of financing taxable stock acquisitions during 1987-1997. Our tests provide the first empirical evidence that acquiring-firms' foreign tax credit positions can significantly reduce their propensity to use debt (versus internal funds) to finance acquisitions. This is true even though the acquirers are high-tax rate firms that would ordinarily have tax incentives to use debt. We also find that acquiring firms are significantly less likely to use debt financing when the target firms they acquire have tax-loss carryovers. These results provide new insights regarding how taxes relate to acquisitions financing.
Keywords: Financing choice, Corporate acquisitions, Taxes
JEL Classification: G32, G34, H25
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
What Do We Know About Capital Structure? Some Evidence from International Data
By Raghuram G. Rajan and Luigi Zingales
-
The Theory and Practice of Corporate Finance: Evidence from the Field
By John R. Graham and Campbell R. Harvey
-
The Theory and Practice of Corporate Finance: The Data
By John R. Graham and Campbell R. Harvey
-
Market Timing and Capital Structure
By Malcolm P. Baker and Jeffrey Wurgler
-
Market Timing and Capital Structure
By Malcolm P. Baker and Jeffrey Wurgler
-
Testing Tradeoff and Pecking Order Predictions About Dividends and Debt
By Eugene F. Fama and Kenneth R. French
-
Testing Static Trade-Off Against Pecking Order Models of Capital Structure
-
Optimal Capital Structure Under Corporate and Personal Taxation
By Harry Deangelo and Ronald W. Masulis