Taxes and IPO Pricing: Evidence from U.S. Tax Reform

51 Pages Posted: 18 May 2020

See all articles by Alexander Edwards

Alexander Edwards

University of Toronto - Rotman School of Management

Michelle Hutchens

University of Illinois

Date Written: April 21, 2020


This study examines when and how tax reform impacts the pricing of IPOs. Using the Tax Cuts and Jobs Act of 2017 (TCJA), we examine IPO pricing during the periods of anticipated and post-tax reform. First, we document that firms completing an IPO following the passage of the TCJA experience an increase in valuation. The increase in valuation is significantly lower for firms with net deferred tax assets and U.S. based multinational firms, consistent with those firms benefiting less from the reform. Second, we fail to document an increase in valuation for firms completing their IPO during the period of anticipated tax reform. We further observe that firms did not experience an increased probability of an upward pricing revision during the book-building process during this period, suggesting that the IPO market was unwilling to impound the benefits of anticipated tax reform into offer prices until enactment. This result contrasts with research on the pricing of tax reform for existing publicly traded stock, where prices impound the anticipated benefits from tax reform, far in advance of enactment.

Keywords: tax capitalization, tax reform, initial public offerings, IPO pricing

JEL Classification: H2, G1, M4, K34

Suggested Citation

Edwards, Alexander S. and Hutchens, Michelle, Taxes and IPO Pricing: Evidence from U.S. Tax Reform (April 21, 2020). Available at SSRN: or

Alexander S. Edwards (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4

Michelle Hutchens

University of Illinois ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

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