The Effect of Succession Taxes on Family Firm Investment: Evidence from a Natural Experiment

56 Pages Posted: 12 Dec 2011 Last revised: 7 Jan 2015

See all articles by Margarita Tsoutsoura

Margarita Tsoutsoura

Cornell University; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Date Written: December 26, 2012

Abstract

This paper provides causal evidence on the impact of succession taxes on firm investment decisions and transfer of control. I exploit a 2002 policy change in Greece that substantially reduced the tax on intra-family transfers of businesses and show that succession taxes lead to more than a 40% decline in investment around family successions, slow sales growth, and 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.

Keywords: Family Firms, Transfer of Control, Successions, Private Firms, Estate Taxes, Inheritance Taxes, Investment

JEL Classification: G30, H20

Suggested Citation

Tsoutsoura, Margarita, The Effect of Succession Taxes on Family Firm Investment: Evidence from a Natural Experiment (December 26, 2012). Journal of Finance, Forthcoming, Chicago Booth Research Paper No. 12-15, Fama-Miller Working Paper, Available at SSRN: https://ssrn.com/abstract=1971038 or http://dx.doi.org/10.2139/ssrn.1971038

Margarita Tsoutsoura (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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