Mimicking Tax Strategies: Evidence from IPOs

51 Pages Posted: 24 Oct 2019

See all articles by James Chyz

James Chyz

University of Tennessee, Knoxville - Department of Accounting and Business Law

Erin Henry

University of Arkansas - Department of Accounting

Thomas C. Omer

University of Nebraska at Lincoln - School of Accountancy

Biyu Wu

University of Nebraska at Lincoln - School of Accountancy

Date Written: October 2, 2019

Abstract

We examine whether incumbent firms react to significant IPOs in the same industry by adjusting their tax policy to align with the tax outcomes of the IPO firm. We find that incumbent firms adjust their effective tax rate in response to the difference between it and the effective tax rate of the IPO. Our results are strongest when incumbent firms have greater incentive and ability to mimic the IPO firm’s effective tax rate. We also document that the response of incumbent firms to an IPO is more pronounced for GAAP effective tax rates in some subsets of firms. We contribute to an IPO literature that focuses almost exclusively on the IPO firm itself by showing that an IPO firm can affect the tax policies of incumbent firms within its industry, and to the literature examining the effect of peers on firms’ tax policy.

Keywords: IPO, tax benchmark, strategic reactions

JEL Classification: M41, L21, G24

Suggested Citation

Chyz, James and Henry, Erin and Omer, Thomas C. and Wu, Biyu, Mimicking Tax Strategies: Evidence from IPOs (October 2, 2019). Available at SSRN: https://ssrn.com/abstract=3463499 or http://dx.doi.org/10.2139/ssrn.3463499

James Chyz (Contact Author)

University of Tennessee, Knoxville - Department of Accounting and Business Law ( email )

Knoxville, TN
United States
865-974-1701 (Phone)

Erin Henry

University of Arkansas - Department of Accounting ( email )

Business Bldg. 454
Fayetteville, AR 72701
United States

Thomas C. Omer

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Biyu Wu

University of Nebraska at Lincoln - School of Accountancy ( email )

Lincoln, NE 68588
United States

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