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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Travis Chow & Sterling Huang & Kenneth J. Klassen & Jeffrey Ng, 2022. "The Influence of Corporate Income Taxes on Investment Location: Evidence from Corporate Headquarters Relocations," Management Science, INFORMS, vol. 68(2), pages 1404-1425, February.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:2:p:1404-1425
    DOI: 10.1287/mnsc.2020.3906
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    References listed on IDEAS

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    1. Olson, Adam J. & Yust, Christopher G. & Christensen, Brant E., 2023. "Are public health policies associated with corporate innovation? Evidence from U.S. nonsmoking laws," Research Policy, Elsevier, vol. 52(10).

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