Do U.S. firms disguise acquisitions to avoid taxes?

Abstract

AbstractOur study finds evidence consistent with U.S. multinational firms disguising domestic acquisitions as corporate reorganizations to avoid repatriation‐related taxes. We find that a combination of high potential repatriation costs and large overseas earning balances is positively associated with domestic acquisition volume, but only in deals with low visibility to regulators and investors. Consistent with repatriations of overseas cash, these firms’ low visibility acquisitions (but not their higher visibility counterparts) are associated with 4%–7% lower overseas earnings balances. After a 2017 tax reform reduced the value of this technique, the positive relation between low visibility acquisitions and repatriation costs disappears or reverses.