Tax Incentives on Equity and Firms' Cost of Capital: Evidence from the Quebec Stock Savings Plan
49 Pages Posted: 16 Feb 2005 Last revised: 25 Jan 2016
Date Written: April 21, 2005
We empirically investigate the impact of the QSSP tax incentive on the issue price of shares of initial public offerings of Quebec-based firms during 1982 to 2002. Consistent with expectations, we find that, after controlling for IPO underpricing, the underpricing of IPOs is significantly negatively associated with the QSSP deduction. However, our results suggest that although issuing corporations benefited from the QSSP program through higher issue prices, Quebec individual investors reaped a much larger proportion of the tax benefit than the corporations. Furthermore, contrary to expectations, our evidence indicates that the presence of non-QSSP eligible investors had no significant effect on the sharing of the tax benefit.
Keywords: Implicit taxes, Initial public offerings, Underpricing, Marginal investor, Tax incentives, Quebec Stock Savings Plan
JEL Classification: G18, G32, H22, H30, H32
Suggested Citation: Suggested Citation