DP7182 International Taxation and Takeover Premiums in Cross-border M&As

Author(s): Harry Huizinga, Johannes Voget, Wolf Wagner
Publication Date: February 2009
Keyword(s): international taxation, takeover premiums
JEL(s): F23, G34
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7182

Cross-border M&As can trigger a higher international taxation of the target?s income. Non-resident dividend withholding taxes may be imposed by the target country, while additional corporate income taxation can be imposed by the acquiring country. Our evidence suggests that takeover premiums fully reflect non-resident dividend withholding taxes, while there is some evidence that they reflect corporate income taxation by the acquiring country as well. In contrast, acquiring firm stock market returns around the bid announcement do not appear to reflect either type of taxation. These results are consistent with previous findings that the gains of M&As primarily accrue to target shareholders.