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

64 Pages Posted: 11 Nov 2016 Last revised: 28 Sep 2020

See all articles by Travis Chow

Travis Chow

The University of Hong Kong

Sterling Huang

Singapore Management University - School of Accountancy

Kenneth J. Klassen

University of Waterloo - School of Accounting and Finance

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: September 2020

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

JEL Classification: D22;H25;H73

Suggested Citation

Chow, Travis and Huang, Sterling and Klassen, Kenneth and Ng, Jeffrey, The Influence of Corporate Income Taxes on Investment Location: Evidence from Corporate Headquarters Relocations (September 2020). Singapore Management University School of Accountancy Research Paper No. 2017-59, Available at SSRN: https://ssrn.com/abstract=2867298 or http://dx.doi.org/10.2139/ssrn.2867298

Travis Chow

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

Sterling Huang (Contact Author)

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore
6808 7929 (Phone)

Kenneth Klassen

University of Waterloo - School of Accounting and Finance ( email )

Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x38550 (Phone)
519-888-7562 (Fax)

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

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