The effect of transaction structure on price: Evidence from subsidiary sales

The effect of transaction structure on price: Evidence from subsidiary sales We analyze the effect of tax-based transaction structure on the acquisition price of corporate subsidiaries. For a sample of 200 subsidiary stock acquisitions, the evidence weakly supports the conclusion that acquisition premiums are higher in transactions accompanied by an I.R.C. §338(h)(10) election. We find that the tax benefits generated by the §338(h)(10) election are positively correlated with acquisition premiums. Overall, this study indicates that the tax structure of a subsidiary sale influences the price paid in the transaction, and the tax structure selected is a function of a divesting parent's tax basis in the subsidiary's stock and net assets. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

The effect of transaction structure on price: Evidence from subsidiary sales

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Publisher
Elsevier
Copyright
Copyright © 2000 Elsevier Science B.V.
ISSN
0165-4101
DOI
10.1016/S0165-4101(00)00029-X
Publisher site
See Article on Publisher Site

Abstract

We analyze the effect of tax-based transaction structure on the acquisition price of corporate subsidiaries. For a sample of 200 subsidiary stock acquisitions, the evidence weakly supports the conclusion that acquisition premiums are higher in transactions accompanied by an I.R.C. §338(h)(10) election. We find that the tax benefits generated by the §338(h)(10) election are positively correlated with acquisition premiums. Overall, this study indicates that the tax structure of a subsidiary sale influences the price paid in the transaction, and the tax structure selected is a function of a divesting parent's tax basis in the subsidiary's stock and net assets.

Journal

Journal of Accounting and EconomicsElsevier

Published: Aug 1, 2000

References

  • Valuation and clean surplus accounting for operating and financial activities
    Feltham, G.; Ohlson, J.
  • Intertemporal tax discontinuities
    Shackelford, D.; Verrecchia, R.

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