Buying assets or shares of an acquisition target - An examination of tax planning behavior of Finnish listed companies

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Journal Title

Journal ISSN

Volume Title

School of Business | Master's thesis

Authors

Date

2019

Department

Laskentatoimen laitos

Major/Subject

Mcode

Degree programme

Accounting

Language

en

Pages

69

Series

Abstract

The objective of the thesis is to examine the connection between companies’ tax planning tendencies and their preferences for the nature of the acquisitions. The focus is on the acquirer and its decision-making on the nature of the acquisitions, especially on the possible noticeable preferences towards either asset or share acquisitions. The research question is thus the following: does the acquirer’s tax planning tendencies affect its preferences to choose between asset and share acquisitions. The analysis is made on both theoretical and empirical level. The theoretical analysis focuses on examining the tax determinants but also other possible factors influencing the decision-making on various alternatives for structuring an acquisition. The objective for the theoretical analysis is, thus, to understand the different determinants affecting the acquirer’s preferences and to be able to make a dichotomy between asset and share acquisitions. The empirical analysis focuses on studying the acquirer’s tax planning tendencies evidenced by prior effective tax rates and other tax aggressiveness measures. Furthermore, the objective of the empirical analysis is to study the possible correlation between the acquirer’s tax planning tendencies and its preferences between asset and share acquisitions. The empirical analysis is performed by using data on acquisitions made by Finnish listed companies and publicly available information on their effective tax rates and financials. Consistent with set hypotheses, the findings indicate that companies with higher effective tax rates prior to acquisition prefer asset acquisitions and that larger companies are more likely to prefer asset acquisitions. The model did not support the hypothesized notion that prior increase in goodwill would increase the likelihood for a company to prefer asset acquisitions. Most significant finding was the possible correlation between the size of the acquirer and the nature of the acquisition. This finding is consistent with prior research. All in all, the results indicate that additional research would be needed to be able to conclude on the possible significant correlation between the acquirer’s tax planning tendencies and its preferences for the nature of the acquisitions, and especially on the tax determinants and control variables affecting the model. However, the empirical analysis performed on a rather limited sample indicates that acquirers with higher prior effective tax rates and larger acquirers measured by total assets would appear to prefer asset acquisitions.

Description

Thesis advisor

Ojala, Hannu

Keywords

tax planning, effective tax rate, asset acquisition, share acquisition

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Citation

Permanent link to this item

https://urn.fi/URN:NBN:fi:aalto-201909225408

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[gradu] Kauppakorkeakoulu / BIZ