Tax avoidance in different firm types and the role of nonfamily involvement in private family firms

Abstract

This study simultaneously distinguishes between private family firms, private nonfamily firms, public family firms, and public nonfamily firms. We show that private family firms avoid taxes less than public family firms and public nonfamily firms; however, we do not find a difference between private family firms and private nonfamily firms. Therefore, building on family firm heterogeneity, our results indicate that tax avoidance in private family firms differs depending on the involvement of nonfamily owners and/or managers. We find that private family firms that are wholly owned and managed by family members indeed avoid taxes less than private nonfamily firms.

Family Firm Heterogeneity and Tax Aggressiveness: A Quasi-Experimental Analysis of the Impact of Different Family Generations

“…In addition, while a large body of literature has focused on the comparison between family and non-family firms, private and public firms, or large and small private firms, few studies have analysed the extent to which the well-known heterogeneity of family firms (Brigham et al, 2019;Chua et al, 2012;Stanley et al, 2019) may affect their tax decisions and thus influence the differences in behaviour compared to non-family firms. Brune et al (2019) found family involvement in firm management has a positive effect on active tax avoidance, compared to non-family firms. Kovermann and Wendt (2019) showed that tax avoidance is positively related to the percentage of family ownership.…”

“…First, we focus on tax aggressiveness in a family firm context taking into account the heterogeneous behaviour of the different generations in control (Chirico et al, 2011), as family firms should not be analysed as a homogeneous entity (Westhead & Howorth, 2007). We go beyond most of the existing research that studies the difference between private and public family firms (Brune et al, 2019), private family firms and private non-family firms (Koverman & Wendt, 2019;Monterry & Sánchez, 2010), or public family firms and public non-family firms (Gaaya et al, 2017). It is worth noting that generational transition is one of the most sensitive processes in family firms (Miller et al, 2003;Molly et al, 2010); as such, further research is needed on this topic.…”

“…There is a lack of empirical research about the level of active tax management or tax aggressiveness of family firms (Desai & Dharmapala, 2006;Scholes et al, 2009); moreover, the literature reports contradictory results. Whereas there are studies showing a positive relationship between family firm status and tax aggressiveness (Gaaya et al, 2017;Koverman & Wendt, 2019;López et al, 2019;Mafrolla & D'Amico, 2016;), the opposite relationship has also been found (Bauweraerts & Vandernoot, 2019;Brune et al, 2019;Chen et al, 2010;Sánchez et al, 2016;Steijvers & Niskanen, 2014). In addition, while a large body of literature has focused on the comparison between family and non-family firms, private and public firms, or large and small private firms, few studies have analysed the extent to which the well-known heterogeneity of family firms (Brigham et al, 2019;Chua et al, 2012;Stanley et al, 2019) may affect their tax decisions and thus influence the differences in behaviour compared to non-family firms.…”

“…Accordingly, this paper aims to shed light on the effect of family firm heterogeneity, in terms of the controlling generation, on tax management in family SMEs. Analysing this factor can provide a better understanding of their managerial behaviour (Brune et al, 2019). More specifically, using a sample of 128 family SMEs in the Spanish tourism industry, we analyse whether the first and subsequent generations show different levels of tax aggressiveness.…”

The combined impacts of fiscal and credit policies on green firm's investment opportunity: Evidences from Chinese firm‐level analysis

“…Tax avoidance is positively associated with bank loans and loan costs (Beladia et al, 2018). Private family firms avoid taxes less than public family and nonfamily firms (Brune et al, 2019). Tax cuts and credits generate an important impact on firm investments and capital allocation (Altug et al, 2009; Ayuso et al, 2018; Danielova & Sarkar, 2011; Dobbins & Jacob, 2016; Haga et al, 2019; Hines & Park, 2019; Marekwica, 2012; Muthitacharoen, 2021; Sarkar, 2012).…”