The Influence of Corporate Income Taxes on Investment Location: Evidence from Corporate Headquarters Relocations

58 Pages Posted: 11 Nov 2016 Last revised: 8 Aug 2018

See all articles by Travis Chow

Travis Chow

Singapore Management University - School of Accountancy

Sterling Huang

Singapore Management University - School of Accountancy

Kenneth J. Klassen

University of Waterloo - School of Accounting and Finance

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: January 1, 2018

Abstract

This study examines the specific effects of jurisdictions’ corporate tax policies on firms’ corporate headquarters location decisions. For identification, we rely on changes in state corporate income tax rates across time and states. On average, a 1% reduction in rate is associated with a reduction in the likelihood of cross-state headquarters relocation ranging from 9.3% to 27%. Further examination of the unique tax policy features within the state apportionment system support the interpretation that taxation drives this effect. We contribute to the literature on corporate decision-making by showing how state income taxation policy affects real corporate decisions with significant economic consequences for the company and the state.

Keywords: Headquarter Relocation, Corporate Tax, Income Apportionment Formula, Tax Planning

JEL Classification: J24, H25, H26, H20

Suggested Citation

Chow, Travis and Huang, Sterling and Klassen, Kenneth and Ng, Jeffrey, The Influence of Corporate Income Taxes on Investment Location: Evidence from Corporate Headquarters Relocations (January 1, 2018). Singapore Management University School of Accountancy Research Paper No. 2017-59. Available at SSRN: https://ssrn.com/abstract=2867298 or http://dx.doi.org/10.2139/ssrn.2867298

Travis Chow

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore
+65 6808 5450 (Phone)

Sterling Huang (Contact Author)

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore
6808 7929 (Phone)

Kenneth Klassen

University of Waterloo - School of Accounting and Finance ( email )

Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x38550 (Phone)
519-888-7562 (Fax)

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

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