Capital Gains Taxes and Stockholders' Response to Dutch Auction Tender Offers

Abstract

Capital gains taxes are conjectured to explain upward sloping supply curves in tender offers. This paper analyzes expiration day returns in Dutch auction tender offers to examine this conjecture. A proxy measure for the capital gains of the marginal tendering stockholder is constructed, based on tender offer size and daily price-volume history for one year. Cross-sectional regressions suggest that the tender price increases with the capital gains of the marginal tenderer, but only for firms with low institutional holdings. This is consistent with capital gains tax effects being relevant only when tax-exempt holdings are low.

Taxes, tenders and the design of Australian off‐market share repurchases

“…Consistent with that, the significant positive coefficient (β 2 ) for bbsize indicates that larger size offerings lead to a higher repurchase price, as would be expected if non‐tax‐preferred shareholders must be induced to participate and because of risks to ‘arbitrageurs’. Our finding of an upward sloping supply curve is consistent with the results of Bagwell (1992) and Kadapakkam and Seth (1997) for Dutch auction tenders and Brown and Ryngaert (1992) for fixed‐price tenders. Repurchases without a franked dividend component have a higher repurchase price (β 5 > 0) as expected.…”

Long‐term capital gains taxes and stock prices: Evidence from India

“…For example, see Naranjo et al (1998), Dhaliwal et al (2003), Sialm (2009) and Hail et al (2017). 2 Several studies address the relevance of taxes on capital gains without distinguishing between short-term and capital gains taxes; see for example, Kadapakkam and Seth (1997). Other studies focus on the higher tax on short-term capital gains compared to long-term capital gains; see for example, Reese (1998) and Blouin et al (2003).…”