1 Introduction
2 Related literature and hypothesis development
2.1 Taxes and cross-border M&A
2.2 Pertinent TCJA provisions and hypothesized effects on outbound M&A
3 Empirical setup, data, and descriptive statistics
3.1 Empirical setup
3.1.1 Target-level analysis
3.1.2 Acquirer-level analysis
3.2 Sample selection and descriptive statistics
3.2.1 Global sample of foreign targets
Panel A: Sample composition by target country (Global Sample) | ||||||
Country | # of Cross-border Deals | Country | # of Cross-border Deals | |||
Australia | 148 | Lithuania | 19 | |||
Austria | 23 | Malaysia | 68 | |||
Belgium | 119 | Netherlands | 58 | |||
Bosnia | 9 | New Zealand | 27 | |||
Brazil | 24 | Norway | 98 | |||
Bulgaria | 19 | Philippines | 6 | |||
Canada | 124 | Poland | 115 | |||
Cayman Islands | 57 | Portugal | 40 | |||
China | 58 | Romania | 46 | |||
Colombia | 29 | Russia | 98 | |||
Croatia | 14 | Serbia | 43 | |||
Czech Republic | 48 | Slovak Republic | 11 | |||
Denmark | 52 | Slovenia | 17 | |||
Finland | 60 | South Korea | 37 | |||
France | 198 | Spain | 235 | |||
Germany | 207 | Sri Lanka | 3 | |||
Greece | 26 | Sweden | 124 | |||
Hungary | 11 | Taiwan | 9 | |||
India | 90 | Thailand | 23 | |||
Ireland | 46 | Turkey | 13 | |||
Italy | 233 | Ukraine | 42 | |||
Japan | 24 | United Kingdom | 470 | |||
Kazakhstan | 9 | Vietnam | 17 | |||
Latvia | 19 | Total | 3,266 | |||
Panel B: Target-level descriptive statistics (Global Sample) | ||||||
Variables | N | Mean | SD | Q1 | Median | Q4 |
US_ACQ | 3,266 | 0.196 | 0.397 | 0.000 | 0.000 | 0.000 |
POST | 3,266 | 0.195 | 0.396 | 0.000 | 0.000 | 0.000 |
LN(ASSETS) | 3,266 | 10.479 | 2.043 | 9.079 | 10.446 | 11.817 |
ROA | 3,266 | 0.025 | 0.257 | −0.015 | 0.047 | 0.131 |
LEVERAGE | 3,266 | 0.189 | 0.264 | 0.008 | 0.076 | 0.267 |
INTANGIBLES | 3,266 | 0.077 | 0.156 | 0.000 | 0.005 | 0.060 |
LOSS | 3,266 | 0.317 | 0.465 | 0.000 | 0.000 | 1.000 |
NON_US_ACQ | 7,534 | 0.348 | 0.477 | 0.000 | 0.000 | 1.000 |
Panel C: Acquirer-level descriptive statistics (U.S. Sample) | ||||||
Variables | N | Mean | SD | Q1 | Median | Q4 |
FOR_ACQ | 11,975 | 0.052 | 0.223 | 0.000 | 0.000 | 0.000 |
POST | 11,975 | 0.218 | 0.413 | 0.000 | 0.000 | 0.000 |
REPAT_TAX_COST | 11,975 | 0.442 | 0.497 | 0.000 | 0.000 | 1.000 |
DOMESTIC | 11,362 | 0.410 | 0.492 | 0.000 | 0.000 | 1.000 |
NON_INVGRADE_RATING | 11,791 | 0.866 | 0.340 | 1.000 | 1.000 | 1.000 |
SALES_GROWTH | 11,975 | 0.138 | 0.458 | −0.020 | 0.068 | 0.190 |
WORKING_CAPITAL | 11,975 | 0.243 | 0.180 | 0.099 | 0.215 | 0.355 |
LEVERAGE | 11,975 | 0.173 | 0.172 | 0.000 | 0.138 | 0.292 |
MTB | 11,975 | 3.677 | 4.424 | 1.364 | 2.340 | 4.104 |
SIZE | 11,975 | 6.421 | 2.212 | 4.881 | 6.486 | 7.969 |
NOL | 11,975 | 0.728 | 0.445 | 0.000 | 1.000 | 1.000 |
3.2.2 U.S. sample of potential acquirers
4 Main results
4.1 Target-level analysis
4.1.1 Main specification
Panel A: Main Results | ||||||
(1) | (2) | (3) | (4) | (5) | (6) | |
Coef. (SE) | Coef. (SE) | Coef. (SE) | Coef. (SE) | Coef. (SE) | Coef. (SE) | |
Variables | US_ACQ | US_ACQ | US_ACQ | US_ACQ | US_ACQ | NON_US_ACQ |
POST | −0.060*** | −0.045*** | −0.060*** | −0.045*** | −0.035** | 0.010 |
(0.016) | (0.016) | (0.016) | (0.016) | (0.017) | (0.012) | |
LN(ASSETS) | 0.003 | −0.003 | 0.004 | −0.001 | 0.000 | 0.023*** |
(0.003) | (0.003) | (0.003) | (0.003) | (0.004) | (0.003) | |
ROA | −0.047 | −0.012 | −0.042 | −0.010 | 0.001 | 0.014 |
(0.037) | (0.037) | (0.037) | (0.037) | (0.038) | (0.025) | |
LEVERAGE | −0.042 | −0.009 | −0.041 | −0.009 | −0.010 | −0.016 |
(0.027) | (0.026) | (0.027) | (0.027) | (0.029) | (0.023) | |
INTANGIBLES | 0.171*** | 0.108** | 0.157*** | 0.081* | 0.050 | 0.168*** |
(0.048) | (0.049) | (0.049) | (0.049) | (0.052) | (0.042) | |
LOSS | −0.013 | −0.017 | −0.007 | −0.004 | 0.001 | 0.007 |
(0.018) | (0.018) | (0.018) | (0.018) | (0.019) | (0.013) | |
Intercept | 0.179*** | 0.235*** | 0.168*** | 0.216*** | 0.201*** | 0.104*** |
(0.035) | (0.037) | (0.036) | (0.037) | (0.041) | (0.026) | |
Observations | 3,266 | 3,266 | 3,266 | 3,266 | 3,208 | 7,534 |
Industry-FE | No | No | Yes | Yes | No | Yes |
Country-FE | No | Yes | No | Yes | No | Yes |
Country-Industry-FE | No | No | No | No | Yes | No |
R2 | 0.009 | 0.082 | 0.021 | 0.097 | 0.149 | 0.229 |
Panel B: Robustness Tests | ||||||
(1) | (2) | (3) | ||||
Coef. (SE) | Coef. (SE) | Coef. (SE) | ||||
Variables | US_ACQ | US_ACQ | US_ACQ | |||
POST | −0.021*** | −0.047*** | −0.037* | |||
(0.007) | (0.017) | (0.020) | ||||
LN(ASSETS) | 0.004*** | −0.002 | 0.007 | |||
(0.001) | (0.004) | (0.005) | ||||
ROA | −0.005 | 0.006 | 0.011 | |||
(0.016) | (0.040) | (0.046) | ||||
LEVERAGE | −0.013 | 0.005 | −0.018 | |||
(0.013) | (0.029) | (0.038) | ||||
INTANGIBLES | 0.086*** | 0.077 | 0.104 | |||
(0.027) | (0.053) | (0.068) | ||||
LOSS | −0.005 | −0.000 | 0.004 | |||
(0.008) | (0.020) | (0.026) | ||||
Intercept | 0.036** | 0.220*** | 0.112** | |||
(0.015) | (0.040) | (0.054) | ||||
Observations | 8,175 | 2,844 | 1,481 | |||
Industry-FE | Yes | Yes | Yes | |||
Country-FE | Yes | Yes | Yes | |||
Country-Industry-FE | No | No | No | |||
R2 | 0.073 | 0.096 | 0.114 |
(1) | (2) | (3) | (4) | (5) | (6) | |
---|---|---|---|---|---|---|
Coef. (SE) | Coef. (SE) | Coef. (SE) | Coef. (SE) | Coef. (SE) | Coef. (SE) | |
Variables | US_ACQ | US_ACQ | US_ACQ | US_ACQ | US_ACQ | US_ACQ |
Samples | Low tax rate | High tax rate | High profitability & Low tax rate | Remaining sample | Low sales growth | High sales growth |
POST | −0.052** | −0.007 | −0.080** | −0.024 | −0.060*** | −0.015 |
(0.022) | (0.030) | (0.034) | (0.019) | (0.023) | (0.026) | |
LN(ASSETS) | −0.002 | −0.001 | −0.001 | 0.000 | 0.003 | −0.004 |
(0.004) | (0.006) | (0.007) | (0.004) | (0.006) | (0.006) | |
ROA | −0.006 | −0.021 | 0.044 | −0.032 | 0.061 | −0.016 |
(0.045) | (0.063) | (0.116) | (0.041) | (0.062) | (0.065) | |
LEVERAGE | −0.010 | −0.006 | 0.036 | −0.012 | −0.047 | −0.029 |
(0.032) | (0.047) | (0.066) | (0.030) | (0.039) | (0.043) | |
INTANGIBLES | 0.140** | −0.011 | 0.103 | 0.052 | 0.116 | 0.049 |
(0.069) | (0.070) | (0.105) | (0.056) | (0.080) | (0.079) | |
LOSS | −0.019 | 0.007 | 0.000 | −0.000 | 0.024 | 0.006 |
(0.022) | (0.029) | (0.000) | (0.019) | (0.027) | (0.034) | |
Intercept | 0.203*** | 0.236*** | 0.207** | 0.191*** | 0.137** | 0.258*** |
(0.046) | (0.062) | (0.085) | (0.046) | (0.063) | (0.064) | |
p-Value (POST) | (1) < (2): 0.115 | (3) < (4): 0.075 | (5) < (6): 0.098 | |||
Observations | 1,789 | 1,476 | 896 | 2,368 | 1,248 | 1,242 |
Industry-FE | Yes | Yes | Yes | Yes | Yes | Yes |
Country-FE | Yes | Yes | Yes | Yes | Yes | Yes |
R2 | 0.130 | 0.068 | 0.128 | 0.100 | 0.112 | 0.136 |
4.1.2 Alternative specification
(1) | (2) | |
---|---|---|
Coef. (SE) | Coef. (SE) | |
Variables | ACQ_COUNTRY | ACQ_COUNTRY |
REFORM*POST | −0.327*** | −0.352*** |
(0.122) | (0.134) | |
LN(GDP_CAPITA) | −0.415 | −0.109 |
(0.405) | (0.420) | |
GDP_GROWTH | −0.011 | −0.017 |
(0.014) | (0.016) | |
NUMBER_ACQUISITIONS | 0.192*** | 0.271*** |
(0.023) | (0.044) | |
LN(DISTANCE) | −0.107*** | −0.122*** |
(0.035) | (0.045) | |
NEIGHBORING | 0.708*** | 0.669*** |
(0.082) | (0.103) | |
COMM_LANGUAGE | 0.724*** | 0.566*** |
(0.074) | (0.079) | |
COLONY | 0.327*** | 0.297*** |
(0.070) | (0.097) | |
SAME_COUNTRY | 0.657*** | 0.222 |
(0.185) | (0.225) | |
MARKET_VALUE_EQUITY | 0.002 | |
(0.002) | ||
EXCHANGE_RATE | 0.001 | |
(0.001) | ||
Observations | 189,589 | 103,202 |
Country-FE | Yes | Yes |
Pseudo R2 | 0.267 | 0.278 |
4.2 Acquirer-level analysis
(1) | (2) | (3) | |
---|---|---|---|
Coef. (SE) | Coef. (SE) | Coef. (SE) | |
Variables | FOR_ACQ | FOR_ACQ | FOR_ACQ |
REPAT_TAX_COST*POST | −0.032*** | ||
(0.009) | |||
DOMESTIC*POST | 0.036*** | ||
(0.008) | |||
NON_INVGRADE_RATING*POST | 0.038* | ||
(0.021) | |||
SALES_GROWTH | 0.004 | 0.006* | 0.004 |
(0.003) | (0.003) | (0.003) | |
WORKING_CAPITAL | 0.021 | 0.030 | 0.021 |
(0.026) | (0.026) | (0.026) | |
LEVERAGE | −0.039* | −0.037 | −0.040* |
(0.021) | (0.023) | (0.021) | |
MTB | 0.002*** | 0.001** | 0.002*** |
(0.001) | (0.001) | (0.001) | |
SIZE | −0.012** | −0.016*** | −0.013** |
(0.006) | (0.006) | (0.006) | |
NOL | −0.011 | −0.011 | −0.010 |
(0.008) | (0.008) | (0.008) | |
Intercept | 0.136*** | 0.155*** | 0.128*** |
(0.038) | (0.040) | (0.039) | |
Observations | 11,975 | 11,362 | 11,791 |
Firm-FE | Yes | Yes | Yes |
Year-FE | Yes | Yes | Yes |
R2 | 0.250 | 0.251 | 0.249 |
5 Additional analyses
5.1 Deal announcement returns
(1) | (2) | (3) | (4) | |
---|---|---|---|---|
Coef. (SE) | Coef. (SE) | Coef. (SE) | Coef. (SE) | |
Variables | CAR | CAR | CAR | CAR |
REPAT_TAX | −0.029 | 0.142 | −0.138 | −0.027 |
(0.199) | (0.215) | (0.212) | (0.193) | |
REPAT_TAX*POST | 0.733* | 0.570 | 0.899** | 0.773** |
(0.370) | (0.410) | (0.275) | (0.308) | |
LEVERAGE | 0.040 | 0.038 | 0.038 | 0.036 |
(0.023) | (0.022) | (0.022) | (0.023) | |
MTB | −0.001** | −0.001* | −0.002*** | −0.001** |
(0.001) | (0.001) | (0.000) | (0.000) | |
SIZE | −0.003 | −0.002* | −0.003 | −0.003 |
(0.001) | (0.001) | (0.002) | (0.001) | |
LN(DEAL_VALUE) | 0.004* | 0.003 | 0.004 | 0.004 |
(0.002) | (0.002) | (0.002) | (0.002) | |
DIVERSIFYING | 0.005 | 0.006 | 0.004 | 0.006 |
(0.005) | (0.005) | (0.004) | (0.003) | |
PUBLIC_TARGET | −0.017* | −0.018** | −0.017 | −0.016 |
(0.008) | (0.007) | (0.010) | (0.009) | |
Intercept | −0.013 | −0.015 | −0.008 | −0.011 |
(0.016) | (0.018) | (0.020) | (0.022) | |
Observations | 733 | 733 | 589 | 589 |
Industry-FE | No | Yes | No | Yes |
Country-FE | No | Yes | No | Yes |
Year-FE | Yes | Yes | Yes | Yes |
R2 | 0.049 | 0.111 | 0.054 | 0.118 |
5.2 Cash versus noncash acquisitions
5.3 Domestic U.S. acquisitions
(1) | (2) | (3) | (4) | (5) | |
---|---|---|---|---|---|
Coef. (SE) | Coef. (SE) | Coef. (SE) | Coef. (SE) | Coef. (SE) | |
Variables | US_ACQ | US_ACQ | US_ACQ | US_ACQ | US_ACQ |
Samples | Full sample | Untaxed foreign earnings | No untaxed foreign earnings | High profitability & non-U.S. sales | Remaining sample |
POST | 0.052* | 0.150** | 0.014 | 0.227* | 0.012 |
(0.032) | (0.075) | (0.035) | (0.120) | (0.048) | |
LN(MARKET_CAP) | −0.004 | 0.013 | −0.008 | 0.087** | 0.004 |
(0.008) | (0.020) | (0.009) | (0.035) | (0.019) | |
ROA | 0.038 | −0.339 | 0.063 | −1.161 | 0.214 |
(0.117) | (0.260) | (0.131) | (1.077) | (0.344) | |
LEVERAGE | 0.019 | −0.003 | −0.002 | −0.041 | 0.218* |
(0.051) | (0.131) | (0.057) | (0.328) | (0.120) | |
INTANGIBLES | −0.117* | −0.146 | −0.028 | −0.030 | −0.333 |
(0.071) | (0.157) | (0.079) | (0.325) | (0.216) | |
LOSS | −0.002 | −0.000 | −0.014 | 0.000 | 0.070 |
(0.041) | (0.110) | (0.044) | (0.000) | (0.093) | |
Intercept | 0.860*** | 0.690*** | 0.920*** | 0.106 | 0.720*** |
(0.063) | (0.152) | (0.069) | (0.380) | (0.161) | |
p-Value (POST) | - | (2) > (3): 0.048 | (4) > (5): 0.033 | ||
Observations | 850 | 230 | 612 | 59 | 162 |
Industry-FE | Yes | Yes | Yes | Yes | Yes |
R2 | 0.050 | 0.049 | 0.081 | 0.304 | 0.161 |