IPOs and Corporate Taxes
75 Pages Posted: 16 Sep 2021 Last revised: 31 May 2022
Date Written: September, 2021
How does going public affect firms’ tax obligations and tax planning? Using a panel of U.S. corporate tax return data from 1994 to 2018, we compare tax payments for firms that completed an IPO with those that filed for an IPO but later withdrew and remained private. We find that in the years immediately following IPO completion, firms have a higher probability of paying taxes and pay more U.S. tax. The effects occur regardless of tax status in the pre-IPO period and are not explained by statutory limitations imposed on the use of pre-IPO losses. Higher income reported for financial reporting purposes, as well as lower interest deductions attributable to debt repayment, contribute to the increased tax payments. These increases are partially offset by higher tax deductions for post-IPO investment and employment spending. Furthermore, the IPO is associated with increased tax planning through foreign tax haven use. The evidence adds to the nascent literature examining corporate tax implications of the IPO decision.
Keywords: Corporate tax, IPO, Investment, tax havens
JEL Classification: G31, G32, H25
Suggested Citation: Suggested Citation