Details
| Original language | English |
|---|---|
| Pages (from-to) | 549-571 |
| Number of pages | 23 |
| Journal | Journal of financial economics |
| Volume | 138 |
| Issue number | 2 |
| Early online date | 20 Jun 2020 |
| Publication status | Published - Nov 2020 |
| Externally published | Yes |
Abstract
We examine how capital gains taxes affect investment in private start-up (i.e., pre-IPO) firms. Using data on capital raised in individual funding rounds, we estimate the effect of the 2010 SBJA, which implemented a full exemption from federal capital gains tax on the sale of qualified shares. Because of the resulting higher expected after-tax returns, we hypothesize and find evidence consistent with this capital gains tax reduction increasing the amount of investment in start-up firms per funding round by about 12%. The effect is stronger in start-up firms that are likely to have greater administrative capacity. We estimate that about one-third of the tax benefit is captured by investors.
Keywords
- Capital gains taxes, Start-ups, Tax capitalization
ASJC Scopus subject areas
- Business, Management and Accounting(all)
- Accounting
- Economics, Econometrics and Finance(all)
- Finance
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
- Business, Management and Accounting(all)
- Strategy and Management
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In: Journal of financial economics, Vol. 138, No. 2, 11.2020, p. 549-571.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - Capital gains taxation and funding for start-ups
AU - Edwards, Alexander
AU - Todtenhaupt, Maximilian
PY - 2020/11
Y1 - 2020/11
N2 - We examine how capital gains taxes affect investment in private start-up (i.e., pre-IPO) firms. Using data on capital raised in individual funding rounds, we estimate the effect of the 2010 SBJA, which implemented a full exemption from federal capital gains tax on the sale of qualified shares. Because of the resulting higher expected after-tax returns, we hypothesize and find evidence consistent with this capital gains tax reduction increasing the amount of investment in start-up firms per funding round by about 12%. The effect is stronger in start-up firms that are likely to have greater administrative capacity. We estimate that about one-third of the tax benefit is captured by investors.
AB - We examine how capital gains taxes affect investment in private start-up (i.e., pre-IPO) firms. Using data on capital raised in individual funding rounds, we estimate the effect of the 2010 SBJA, which implemented a full exemption from federal capital gains tax on the sale of qualified shares. Because of the resulting higher expected after-tax returns, we hypothesize and find evidence consistent with this capital gains tax reduction increasing the amount of investment in start-up firms per funding round by about 12%. The effect is stronger in start-up firms that are likely to have greater administrative capacity. We estimate that about one-third of the tax benefit is captured by investors.
KW - Capital gains taxes
KW - Start-ups
KW - Tax capitalization
UR - http://www.scopus.com/inward/record.url?scp=85087216282&partnerID=8YFLogxK
U2 - 10.1016/j.jfineco.2020.06.009
DO - 10.1016/j.jfineco.2020.06.009
M3 - Article
AN - SCOPUS:85087216282
VL - 138
SP - 549
EP - 571
JO - Journal of financial economics
JF - Journal of financial economics
SN - 0304-405X
IS - 2
ER -