The effect of capital gains taxes on the initial pricing and underpricing of IPOs

Oliver Zhen Li, Yupeng Lin and John R. Robinson

Journal of Accounting and Economics, 2016, vol. 61, issue 2, 465-485

Abstract: We investigate the extent to which capitalization of expected capital gains taxes and the lock-in effect induced by the capital gains tax rate differential simultaneously impact the pricing and underpricing of initial public offerings (IPOs). Using a large sample of IPOs from 1987 to 2010, we estimate regressions of offer prices and first-day underpricing on tax rates. Supporting tax capitalization, IPO offer prices decrease in long-term capital gains taxes. Supporting lock-in, IPO underpricing increases in the long-term and short-term tax rate differential. These effects are consistent with capital gains taxes simultaneously reducing IPO proceeds and exacerbating IPO underpricing.

Keywords: Tax capitalization; Lock-in; IPO underpricing (search for similar items in EconPapers)
JEL-codes: D4 G1 H2 M4 (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165410115000713
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:jaecon:v:61:y:2016:i:2:p:465-485

DOI: 10.1016/j.jacceco.2015.10.004

Access Statistics for this article

Journal of Accounting and Economics is currently edited by J. L. Zimmerman, S. P. Kothari, T. Z. Lys and R. L. Watts

More articles in Journal of Accounting and Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().