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The Effect of Succession Taxes on Family Firm Investment: Evidence from a Natural Experiment
Author(s) -
TSOUTSOURA MARGARITA
Publication year - 2015
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12224
Subject(s) - ecological succession , investment (military) , monetary economics , control (management) , economics , cash , affect (linguistics) , business , market economy , labour economics , finance , ecology , management , linguistics , philosophy , politics , political science , law , biology
This paper provides causal evidence on the impact of succession taxes on firm investment decisions and transfer of control. Using a 2002 policy change in Greece that substantially reduced the tax on intrafamily transfers of businesses, I show that succession taxes lead to a more than 40% decline in investment around family successions, slow sales growth, and a depletion of cash reserves. Furthermore, succession taxes strongly affect the decision to sell or retain the firm within the family. I conclude by discussing implications of my findings for firms in the United States and Europe.