The Effect of Succession Taxes on Family Firm Investment: Evidence From a Natural Experiment
Margarita Tsoutsoura
Journal of Finance,
Vol. 70 (2),
2015
Abstract
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.
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