Corporate Tax Reform and IPOs

49 Pages Posted: 18 May 2020 Last revised: 2 Sep 2022

See all articles by Alexander Edwards

Alexander Edwards

University of Toronto - Rotman School of Management

Michelle Hutchens

University of Illinois

Date Written: August 2022

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

Suggested Citation

Edwards, Alexander S. and Hutchens, Michelle, Corporate Tax Reform and IPOs (August 2022). Available at SSRN: https://ssrn.com/abstract=3582280 or http://dx.doi.org/10.2139/ssrn.3582280

Alexander S. Edwards (Contact Author)

University of Toronto - Rotman School of Management ( email )

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

Michelle Hutchens

University of Illinois ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

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