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

• Autores: Oliver Zhen Li, Yupeng Lin, John R Robinson
• Localización: Journal of accounting and economics, ISSN 0165-4101, Vol. 61, Nº. 2-3, 2016, págs. 465-485
• Idioma: inglés
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• Resumen

  • 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.