TY - JOUR
T1 - Inheritance tax, shareholder protection, and the market value of family firms
T2 - A cross-country analysis
AU - Ortiz, Marcelo
AU - Carney, Michael
AU - Duran, Patricio
AU - Braun, Matias
AU - Riutort, Julio
N1 - Publisher Copyright:
© 2020 Strategic Management Society.
PY - 2021/8
Y1 - 2021/8
N2 - Research Summary: We examine the relationship among inheritance taxes, shareholder protection, and the family firms' market value. Drawing on the family firm, corporate governance, and institutional complementarities literature, we argue that inheritance taxes act as external corporate governance mechanisms for decoupling business families' socioemotional goals. However, this depends upon minority investor protections. In strong protection countries, the incentives for family self-governance created by high inheritance taxes are offset by the loss of business family autonomy inherent in strong shareholder protection. Using a sample of 284 firms across 31 countries, we provide support for these arguments. Results suggest that inheritance and shareholder protection laws are substitutive external corporate governance mechanisms to align business family and nonfamily shareholders' interests. Managerial Summary: We investigate how inheritance taxes and shareholder protection laws interact to generate several outcomes that can benefit or harm family firms' market value. We argue that high rates of inheritance taxes in a country push business families to focus more on firm value maximization and less on pursuing family-centric goals, thus increasing firm value. However, we further argue that the positive role of inheritance taxes on family firms' market value weakens when the country also exhibits strong shareholder protection laws. Therefore, inheritance and shareholder protection laws substitute for one another when they intersect in business families. We find evidence consistent with these ideas when examining a sample of publicly traded firms across 31 countries. Our results corroborate that policymakers' concerns regarding the protection of minority shareholders must not consider only investor protection laws, but also how investor protection interact with other institutions such as inheritance law.
AB - Research Summary: We examine the relationship among inheritance taxes, shareholder protection, and the family firms' market value. Drawing on the family firm, corporate governance, and institutional complementarities literature, we argue that inheritance taxes act as external corporate governance mechanisms for decoupling business families' socioemotional goals. However, this depends upon minority investor protections. In strong protection countries, the incentives for family self-governance created by high inheritance taxes are offset by the loss of business family autonomy inherent in strong shareholder protection. Using a sample of 284 firms across 31 countries, we provide support for these arguments. Results suggest that inheritance and shareholder protection laws are substitutive external corporate governance mechanisms to align business family and nonfamily shareholders' interests. Managerial Summary: We investigate how inheritance taxes and shareholder protection laws interact to generate several outcomes that can benefit or harm family firms' market value. We argue that high rates of inheritance taxes in a country push business families to focus more on firm value maximization and less on pursuing family-centric goals, thus increasing firm value. However, we further argue that the positive role of inheritance taxes on family firms' market value weakens when the country also exhibits strong shareholder protection laws. Therefore, inheritance and shareholder protection laws substitute for one another when they intersect in business families. We find evidence consistent with these ideas when examining a sample of publicly traded firms across 31 countries. Our results corroborate that policymakers' concerns regarding the protection of minority shareholders must not consider only investor protection laws, but also how investor protection interact with other institutions such as inheritance law.
KW - corporate governance
KW - family firms
KW - firm market value
KW - inheritance tax
KW - institutions
KW - shareholder protection
UR - http://www.scopus.com/inward/record.url?scp=85094659700&partnerID=8YFLogxK
U2 - 10.1002/gsj.1394
DO - 10.1002/gsj.1394
M3 - Article
AN - SCOPUS:85094659700
SN - 2042-5805
VL - 11
SP - 434
EP - 467
JO - Global Strategy Journal
JF - Global Strategy Journal
IS - 3
ER -