IPOs and Corporate Taxes

75 Pages Posted: 16 Sep 2021 Last revised: 31 May 2022

See all articles by Christine Dobridge

Christine Dobridge

Board of Governors of the Federal Reserve System

Rebecca Lester

Stanford Graduate School of Business

Andrew Whitten

U.S. Department of the Treasury - Office of Tax Analysis (OTA)

Date Written: September, 2021

Abstract

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

Dobridge, Christine and Lester, Rebecca and Whitten, Andrew, IPOs and Corporate Taxes (September, 2021). FEDS Working Paper No. 2021-58, Available at SSRN: https://ssrn.com/abstract=3924742 or http://dx.doi.org/10.17016/FEDS.2021.058

Christine Dobridge (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
(202) 912-4341 (Phone)

Rebecca Lester

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

HOME PAGE: http://www.gsb.stanford.edu/faculty-research/faculty/rebecca-lester

Andrew Whitten

U.S. Department of the Treasury - Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave., N.W.
Washington, DC 20220
United States

HOME PAGE: http://andrewwhitten.com

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