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

Harry Huizinga (Tilburg University and CEPR)
Johannes Voget (Oxford University Centre for Business Taxation and Tilburg University)
Wolf Wagner (Tilburg University) 

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.

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