Shareholder Taxes in Acquisition Premiums: The Effect of Capital Gains Taxation

Posted: 22 Jul 2003

See all articles by Benjamin C. Ayers

Benjamin C. Ayers

University of Georgia

Craig E. Lefanowicz

University of Virginia - McIntire School of Commerce

John R. Robinson

Texas A&M University - Department of Accounting

Abstract

We exploit cross-temporal differences in capital gains tax rates to test whether shareholder-level capital gains taxes are associated with higher acquisition premiums for taxable acquisitions. We model acquisition premiums as a function of proxies for the capital gains taxes of target shareholders, taxability of the acquisition, and tax status of the price-setting shareholder as represented by the level of target institutional ownership. Consistent with a lock-in effect for acquisition premiums, results suggest a unique positive association between shareholder capital gains taxes for individual investors and acquisition premiums for taxable acquisitions, which is mitigated by target institutional ownership.

Keywords: corporate acquisitions, shareholder taxes, acquisition premiums

JEL Classification: H24, H25, G34, G32, M41

Suggested Citation

Ayers, Benjamin C. and Lefanowicz, Craig E. and Robinson, John R., Shareholder Taxes in Acquisition Premiums: The Effect of Capital Gains Taxation. Available at SSRN: https://ssrn.com/abstract=420480

Benjamin C. Ayers

University of Georgia ( email )

706-542-3772 (Phone)
706-542-3630 (Fax)

Craig E. Lefanowicz

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States
434-924-6356 (Phone)

John R. Robinson (Contact Author)

Texas A&M University - Department of Accounting ( email )

430 Wehner
College Station, TX 77843-4353
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
1,481
PlumX Metrics