Corporate Tax Reform and IPOs

Abstract

We examine the influence of corporate tax reform on the IPO process. Prior research documents an increase in equity prices well in advance of enactment of tax reform (i.e., the TCJA) incorporating the expected benefits of the reform. In contrast, we fail to document a change in IPO pricing in advance of enactment of the TCJA, but confirm an increase in IPO pricing after enactment. In additional tests, we document some anticipatory behavior in IPO firms, as the firm that IPO during the period of anticipated tax reform are those with lower expected gains from the reform. We interpret our findings as evidence that frictions in the IPO market lead to a delay in the pricing of expected reform benefits.

Keywords: corporate taxes, tax reform, initial public offerings

JEL Classification: H2, G1, M4, K34