Escape from the USA: Government debt-to-GDP ratio, country tax competitiveness, and US-OECD cross-border M&As

We study how differences in target country-US tax competitiveness influence acquirers’ share price reactions to US cross-border acquisitions, the tax savings after acquisition completion, and the US cross-border acquisition deal flows. We employ two-stage least-squares regressions and use the fitted component of the government debt-to-GDP ratio difference between the US and a target country as a proxy for the target country-US tax-competitiveness difference. Using a sample of US acquisitions of targets in other OECD countries, in which around one-tenth of the target firms are publicly listed firms while the rest are private and subsidiary firms, our findings suggest that tax arbitrage (a) increases the shareholder wealth of US acquirers and (b) is likely an important driver of US-OECD cross-border acquisition deal flows.