Mimicking Tax Strategies: Evidence from IPOs
51 Pages Posted: 24 Oct 2019
Date Written: October 2, 2019
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: Suggested Citation