Faculty of Economics and Business Administration Publications Database

The Effects of Taxation on the Location Decision of Multinational Firms: M&A vs. Greenfield Investments

Authors:
Ruf, Martin
Source:
Volume: 64
Number: 3
Pages: 817 - 838
Month: September
ISSN-Print: 0028-0283
Link External Source: Online Version
Year: 2011
Abstract: In this study, we estimate the impact of differences in international tax rates on the probability of choosing a location for an affiliate of a multinational firm. In particular, we distinguish between the tax sensitivity of Greenfield and Mergers and Acquisitions (M&A) investments. Based on a novel firm-level dataset on German outbound foreign direct investment (FDI), we find evidence that location decisions of M&A investments are less sensitive to differences in tax rates than location decisions of Greenfield investments. According to our logit estimates, after controlling for firm and country-specific characteristics, the tax elasticity for Greenfield investments is negative and in absolute value significantly larger than that associated with M&A investments. This finding is consistent with (partial) capitalization of taxes in the acquisition price when the FDI project takes the form of a M&A.
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