We wish to thank Michael Bradley, Bob Comment, John Easterwood, Anju Seth, Ron Singer, Laura Starks, P.C. Venkatesh, and seminar participants at the University of Houston, the University of Texas (Austin) and the Western Finance Association meetings at Jackson Hole, Wyoming. Seong Hong, Lalith Samarakoon and Ming-Jing Yang provided excellent research assistance.
Capital Gains Taxes and Stockholders' Response to Dutch Auction Tender Offers
Article first published online: 9 MAR 2005
Volume 32, Issue 4, pages 779–800, November 1997
How to Cite
Kadapakkam, P.-R. and Seth, S. (1997), Capital Gains Taxes and Stockholders' Response to Dutch Auction Tender Offers. Financial Review, 32: 779–800. doi: 10.1111/j.1540-6288.1997.tb00910.x
- Issue published online: 9 MAR 2005
- Article first published online: 9 MAR 2005
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.