Tax Benefits as an Important Determinant of Leveraged Buyouts: Empirical Evidence

Tax Benefits as an Important Determinant of Leveraged Buyouts: Empirical Evidence

• Professor of Finance Haizhi Wang
• Hao Shen, Stuart Management Science Ph.D. student

Abstract:

In this paper, we empirically examine whether tax benefits motivate firms to engage in leveraged buyouts (LBOs). Using staggered changes in state corporate income tax rates, we document that firms are more likely to engage in LBOs after the increases of corporate income tax rates. Specifically, the increase in the likelihood of firms undertaking LBOs following tax increases is between 6.9% and 12.9%. We also find that this positive relation is more pronounced for firms with higher levels of ROA and marginal tax rate. Finally, we show that the mean value of tax benefits accounts for between 28.5% and 170% of the premium paid to pre-buyout shareholders.

 

All Illinois Tech faculty, students, and staff are invited to attend.

The Friday Research Presentations series showcases ongoing academic research projects conducted by Stuart School of Business faculty and students, as well as guest presentations by Illinois Tech colleagues, business professionals, and faculty from other leading business schools.

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