Publication Type

Journal Article

Version

acceptedVersion

Publication Date

2-2022

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

Discipline

Accounting | Corporate Finance

Research Areas

Corporate Reporting and Disclosure

Publication

Management Science

Volume

68

Issue

2

First Page

1404

Last Page

1425

ISSN

0025-1909

Identifier

10.1287/mnsc.2020.3906

Publisher

INFORMS

Embargo Period

5-19-2021

Copyright Owner and License

Authors

Comments

working paper available at https://ink.library.smu.edu.sg/soa_research/1588/

Additional URL

https://doi.org/10.1287/mnsc.2020.3906

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