Effects of Taxation: Corporate Mergers

Effects of Taxation: Corporate Mergers

Effects of Taxation: Corporate Mergers

Effects of Taxation: Corporate Mergers

Excerpt

In this study of the effects of taxation on corporate mergers, the second in the series arising from the research program on the effects of taxation on business conducted through the Harvard Graduate School of Business Administration, financed by a grant from the Merrill Foundation for Advancement of Financial Knowledge, Professors Butters, Lintner, and Cary have combined a description of the relevant aspects of tax law with an analysis of their effects. Taxation may be significant in the absorption of one company by another from two standpoints: it may be a major factor in inducing the sellers to sell or the buyers to buy, and it may greatly influence the form of a transaction once a decision in favor of a merger has been reached. Though the second of these subjects has been widely discussed as an operating problem in business, the first and more fundamental one has not heretofore been analyzed systematically.

The continued establishment of new businesses has been recognized as of general social and political as well as economic importance. The maintenance of existing companies as independent entities is almost equally important. Some government action has been directed towards desired goals at both ends of the life cycle of individual companies. Their formation has been encouraged by various forms of credit guarantees and direct lending as well as by the advisory services of the Department of Commerce. And their disappearance through merger has been limited by antitrust legislation. Taxation, however, has been charged with exercising peculiarly perverse influences at both ends by decreasing the availability of funds for new ventures and forcing the sale of many successful, established companies owned by a single family or a small group of investors. The validity of the second of these tax influences is the principal theme of the present investigation.

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