Banking Market Consolidation and Tax Planning Intermediation : Evidence from Client Firm Tax Haven Operations

This study relies on banking market consolidation via mergers and acquisitions (M&As) to examine banks’ role in intermediating corporate tax planning activities through offshore tax haven operations. After bank M&As, the clients of target banks “involuntarily” switch their banking partners to significantly larger banks (i.e., acquiring banks) with greater global presence and financial expertise that can provide better tax planning services for these clients. We predict and find that after bank M&As, the clients of target banks significantly increase their tax haven operations; additionally, this increase is greater when the acquiring bank is a universal bank that offers comprehensive financial services and when its pre-existing clients engage more aggressively in offshore tax haven operations. We also provide direct evidence that, after bank M&As, the clients of target banks expand their operations into new offshore tax haven countries where the acquiring banks or the acquiring banks’ pre-existing clients have operations.