Empirical evidence for the impact of taxes on national and international mergers and acquisitions

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Taxes can affect mergers and acquisitions through different channels. On the one hand taxes can cause a lock-in effect. Firm owners do not sell if the tax burden on capital gains is too high. Although transactions are economically desirable, e.g. because of synergies, and result in welfare gains, they do not take place because of capital gains taxation.On the other hand firms may use tax planning to compensate this tax disadvantages. Or they shift the tax burden on the acquirer through an increased purchase price. Firms e.g. may use a stock swap instead of cash. If the refinancing cost of an acquisition is deducted in a high tax country, while the earnings of the acquired firm are taxed in a low tax country, this may even result in a tax subsidy.Having analyzed the effects of capital gains taxation on purchase prices in the last project period, we now examine to what extent taxes indeed hinder transactions. Does capital gains taxation reduce the overall number and volume of mergers and acquisitions?The second focus is on the degree of tax planning in the field of mergers and acquisitions. In the last project period we already could show some effects of tax planning after an acquisition. Our results indicate that the acquirer is able to use more efficient tax planning tools than the old owner. We now would like to examine to what extent tax rate differences and other international differences in tax law affect tax planning opportunities. Does the leverage of target firms in high tax countries increase more than in low tax countries? Is the decrease in the tax base especially pronounced in high tax countries?The third focus is on the impact of tax law complexity on investment activity. Are mergers and acquisitions affected more heavily than greenfield investments?