2000 JATA Conference
Taxes and the Structure of Transactions
Volume 22, Supplement
The Effect of Taxes on Acquisition Price
and Transaction Structure
Steve Henning, Wayne Shaw and Toby Stock
The Effects of Goodwill Tax Deductions on the
Market for Corporate Acquisitions
Ben Ayers, Craig E. Lefanowicz, and John R. Robinson
Divestiture Structure and Tax Attributes:
Evidence from the Omnibus Budget Reconciliation Act of 1993
Connie D. Weaver
Joint Ventures Between Non-Profit and For-Profit
Organizations
Richard Sansing
The Effect of Taxes on Acquisition
Price and Transaction Structure
Steve Henning, Wayne Shaw and Toby Stock
Abstract
The purpose of this paper is to investigate the effect of the target's
tax status on the structure of taxable corporate acquisitions. Specifically,
we examine how the taxes imposed on the parties to the transaction
are shared. Our results suggest the acquirer bears target tax costs
through higher acquisition prices. In addition, our results also
suggest that the acquirer pays little, if anything, to the target
for the use of target net operating losses. Finally, we find that
the target's tax status affects the transaction structure since
targets with higher marginal tax rates are more likely to desire
contingent payments in the contract. Top
The Effects of Goodwill Tax Deductions
on the Market for Corporate Acquisitions
Ben Ayers, Craig E. Lefanowicz, and John R. Robinson
Abstract
We analyze the effect of the tax deduction for goodwill amortization
provided by the Omnibus Budget Reconciliation Act of 1993 (OBRA)
on the market for corporate acquisitions. We analyze a sample of
taxable corporate acquisitions, including acquisitions of subsidiaries,
private firms, and public firms, occurring over the period 1990
through 1996. We assess the impact of the goodwill legislation by
(1) quantifying the frequency and size of qualifying acquisitions
and comparing these acquisitions with non-qualifying acquisitions
pre- and post-OBRA and (2) investigating if and how the goodwill
amortization deduction influenced the premium paid for qualifying
corporate acquisitions. We estimate a regression of acquisition
premiums on target firm characteristics including a proxy for purchased
goodwill. We find that acquisitions qualifying for goodwill amortization
comprise less than 17 percent of sample taxable corporate acquisitions
before OBRA, and this percentage does not increase after the enactment
of OBRA. Nonetheless, our regression results indicate that the OBRA
goodwill provisions did contribute to a significant increase in
acquisition premiums associated with purchased goodwill for qualifying
transactions. Thus, rather than operate as a subsidy to acquiring
firms, we find that a majority of the tax benefits associated with
the goodwill amortization deduction accrues to target firm shareholders.
Top
Divestiture Structure and Tax
Attributes: Evidence from the Omnibus Budget Reconciliation Act
of 1993
Connie D. Weaver
Abstract
Using data from 1991 through 1994, this study investigates the
effect of tax provisions on divestiture structure. Specifically,
a set of taxable asset and taxable stock sell-offs are analyzed
to assess the impact of a tax law change requiring purchased intangibles
to be amortized over fifteen years on the structure of these divestitures.
The results provide evidence that allowing the amortization of goodwill,
a previously non-deductible intangible asset, increases the likelihood
of step-up (goodwill-creating) divestitures. However, the likelihood
of step-up transactions decreases as a function of the level of
other transaction intangibles such as customer lists. Although the
incidence of step-up transactions does not increase after the passage
of the tax law, the results show that the structure of individual
transactions is affected in an offsetting manner as a function of
goodwill and other transaction intangibles. This study also provides
evidence suggesting that inferences vary depending on how transactions
are classified. An additional analysis where structure is determined
strictly by the legal form of the divestiture rather than its tax
treatment demonstrates the result of misclassifying taxable stock
transactions that are taxed as taxable asset transactions (§338(h)(10)
divestitures). In this analysis, goodwill deductibility is not a
significant factor in determining the likelihood of transaction
structure. However when the §338(h)(10) divestitures are eliminated
from the sample altogether, goodwill deductibility is again significant
in explaining the likelihood of divestiture structure as is consistent
with the original model. These results suggest that transaction
classification is important when examining the effect of tax provisions
or attributes on divestiture structure. Top
Joint Ventures Between
Non-Profit and For-Profit Organizations
Richard Sansing
Abstract
This paper examines the consequences of allowing a non-profit organization
to form a joint venture with a for-profit organization. Three tax
regimes are considered: prohibiting all such joint ventures; allowing
all such joint ventures; and restricting joint ventures between
non-profit and for-profit entities to those controlled by the non-profit
organization. The paper derives the equilibrium profit sharing rule,
output decision, and organizational form choice under each tax regime.
Joint ventures can create both private and social benefits by reducing
production costs. They can also create private benefits and social
costs by reducing competition. Prohibitions or restrictions on joint
ventures can either increase or decrease social welfare depending
on whether the production cost effect or the competition effect
is more important. Top
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