The Influence of Corporate Income Taxes on Investment Location: Evidence from Corporate Headquarters Relocations

Travis Chow (), Sterling Huang (), Kenneth J. Klassen () and Jeffrey Ng ()
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Travis Chow: Area of Accounting and Law, HKU Business School, The University of Hong Kong, Hong Kong
Sterling Huang: School of Accountancy, Singapore Management University, Singapore 178900
Kenneth J. Klassen: School of Accounting & Finance, University of Waterloo, Waterloo, Ontario N2L 3G1, Canada
Jeffrey Ng: School of Accounting & Finance, University of Waterloo, Waterloo, Ontario N2L 3G1, Canada; School of Accounting and Finance, The Hong Kong Polytechnic University, Hong Kong

Management Science, 2022, vol. 68, issue 2, 1404-1425

Abstract: This study examines the effects of jurisdictions’ corporate taxes and other policies on firms’ headquarters (HQ) location decisions. Using changes in state corporate income tax rates across time and states as the setting, we find that a one-percentage-point increase in the HQ state corporate income tax rate increases the likelihood of firms relocating their HQ out of the state by 16.8%, and an equivalent decrease in the HQ state rate decreases the likelihood of HQ relocations by 9.1%. Exploiting the unique tax policy features within the state apportionment system lends strong support to the interpretation that taxation drives this effect. Our analyses also demonstrate that state income tax features affect the destination of the HQ move. We contribute to the literature on corporate decision making by showing how state income taxation affects a real corporate decision that has significant economic consequences for the company and the state.

Keywords: corporate tax rate; headquarters relocation; state apportionment system (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:68:y:2022:i:2:p:1404-1425

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