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

In this study, we utilize the setting of bank M&As to examine banks’ role in tax planning intermediation through helping their clients establish offshore tax haven operations. After a bank M&A, the clients of the target bank “involuntarily” switch to a significantly larger relationship bank (the acquiring bank) with greater global presence and more expertise in structuring complex financial transactions, which allows those clients to receive better tax planning services. As a result, we find that after bank M&As, the clients of target banks experience significant increase in tax haven operations. The increase in tax haven operations is more pronounced when the acquiring bank is a universal bank and when the acquiring bank’s clients engage more in tax haven operations. Furthermore, we provide direct evidence that after bank M&As, the clients of target firms expand their operations into new tax haven countries where the acquiring banks’ pre-existing clients have operations.