Scholes et al. (2005) predict that S corporations, and other conduit entities such as partnerships and LLCs, can sell for a tax‐driven purchase price premium relative to C corporations. We test this conjecture by comparing purchase price multiples in a sample of taxable stock acquisitions of S corporations to purchase price multiples for a matched set of taxable stock acquisitions of privately held C corporations. Consistent with Scholes et al.'s (2005) predictions, we find evidence that the organizational form of the target influences acquisition tax structure and acquisition price. Specifically, the evidence supports the conclusion that conduit entities (S corporations) fetch a taxbased purchase price premium relative to similar C corporations. Furthermore, our estimates indicate that average tax benefits in S corporation acquisitions are equal to approximately 12–17 percent of deal value.
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1 March 2007
Research Article|
March 01 2007
Tax Benefits as a Source of Merger Premiums In Acquisitions of Private Corporations
Merle M. Erickson;
Merle M. Erickson
aUniversity of Chicago
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Shiing‐wu Wang
Shiing‐wu Wang
bUniversity of Southern California
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Online ISSN: 1558-7967
Print ISSN: 0001-4826
American Accounting Association
2007
The Accounting Review (2007) 82 (2): 359–387.
Citation
Merle M. Erickson, Shiing‐wu Wang; Tax Benefits as a Source of Merger Premiums In Acquisitions of Private Corporations. The Accounting Review 1 March 2007; 82 (2): 359–387. https://doi.org/10.2308/accr.2007.82.2.359
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