Tax and the Separation of Ownership and Control

TAX AND CORPORATE GOVERNANCE, Wolfgang Schoen, ed., Springer, 2008

UCLA School of Law, Law-Econ Research Paper No. 08-09

52 Pages Posted: 14 Apr 2008 Last revised: 19 Oct 2010

Steven A. Bank

University of California, Los Angeles (UCLA) - School of Law

Brian R. Cheffins

University of Cambridge - Faculty of Law; European Corporate Governance Institute (ECGI)

Abstract

While generally the impact tax has on patterns of corporate ownership and control has received little attention, this paper argues that tax is potentially an important determinant of ownership patterns in large companies. The paper focuses mainly on historical developments in Britain, where an outsider/arm's-length system of corporate governance began to take shape after World War I and became fully entrenched by the end of the 1970s. Taxes imposed on corporate profits, taxation of managerial and investment income and inheritance taxes do much to explain why during this period blockholders sought to exit and why there was sufficient demand for shares among investors to permit ownership to separate from control. The paper also discusses developments in the United States and argues that tax helped to foster the separation of ownership and control that reportedly occurred in larger American companies after World War I.

Keywords: corporate ownership, taxation, separation of ownership and control, historical tax developments in Britain and the U.S.

JEL Classification: G34, H24, H25, G15

Suggested Citation

Bank, Steven A. and Cheffins, Brian R., Tax and the Separation of Ownership and Control. TAX AND CORPORATE GOVERNANCE, Wolfgang Schoen, ed., Springer, 2008; UCLA School of Law, Law-Econ Research Paper No. 08-09. Available at SSRN: https://ssrn.com/abstract=1118926

Steven A. Bank (Contact Author)

University of California, Los Angeles (UCLA) - School of Law ( email )

385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
310-794-7601 (Phone)

Brian R. Cheffins

University of Cambridge - Faculty of Law ( email )

10 West Road
Cambridge, CB3 9DZ
United Kingdom
+44 1223 330084 (Phone)
+44 1223 330055 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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