Is a tax deductibility of R&D investment always good for a firm? The case of IPO underpricing

Jing Zeng, Xinglin Liu and Kam C. Chan

Finance Research Letters, 2024, vol. 62, issue PA

Abstract: We examine the impact of an R&D tax deduction policy on initial public offering (IPO) underpricing. Our findings suggest that IPO firms subject to the tax deduction policy (treatment firms) exhibit higher underpricing than those not subject to the tax deduction policy (control firms). The results are robust to alternative metrics of underpricing. We attribute to the worsening information asymmetry and agency conflicts in the treatment firms relative to the control firms due to an increase cashflows from tax savings. Additional analysis suggests that the effect is more salient for IPO firms with high information asymmetry and severe agency conflicts.

Keywords: R&D tax deductions; IPO underpricing; Information asymmetry; Agency conflicts (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612324001739
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:62:y:2024:i:pa:s1544612324001739

DOI: 10.1016/j.frl.2024.105143

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().