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• Professor Jennifer L. Blouin
  Professor of Accounting
  The Wharton School
  University of Pennsylvania

We evaluate the impact of the Domestic Production Activities Deduction (DPAD) on mergers and acquisitions. DPAD reduces effective corporate income tax rates for firms based on their income from work or goods made in the US. We find that cash acquisitions increase substantially for firms in industries with large DPAD-related corporate income tax cuts. Other results indicate that the quality of acquisitions by DPAD-advantaged firms varies as predicted by the neoclassical theory of the firm. Specifically, DPAD improves acquisition quality for transactions where acquirers and targets are likely to generate incremental DPAD tax benefits through their merger.