TAX REFORM AND FOREIGN ACQUISITIONS: A MICROANALYSIS

Abstract

We test the hypothesis that the Tax Reform Act of 1986 (TRA 86) induced acquisitions of U.S. companies by foreign investors from worldwide tax jurisdictions, principally the United Kingdom and Japan, relative to U.S. investors and foreign investors from territorial tax jurisdictions. We find that postacquisition tax advantages realized by U.K. and Japanese investors añer TRA 86 are very small relative to the acquisition size. Thus, our evidence indicates TRA 86 did not significantly enhance the competitive advantage of foreign firms in the U.S. acquisition market.

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