Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87308
Authors: 
Huizinga, Harry
Voget, Johannes
Wagner, Wolf
Year of Publication: 
2012
Series/Report no.: 
Tinbergen Institute Discussion Paper 12-100/IV/DSF39
Abstract: 
In a cross-border takeover, the tax base associated with future capital gains is transferred from target shareholders to acquirer shareholders. Crosscountry differences in capital gains tax rates enable us to estimate the discount in target valuation on account of future capital gains. A one percentage point increase in the capital gains tax rate reduces the value of equity by 0.225%. The implied average effective tax rate on capital gains is 7% and it raises the cost of capital by 5.3% of its no-tax level. This indicates that capital gains taxation is a significant cost to firms when issuing new equity.
Subjects: 
Capital gains taxation
Cost of capital
International takeovers
JEL: 
G32
G34
H25
Document Type: 
Working Paper

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