Are family firms more tax aggressive than non-family firms?
01 Jan 2010-Journal of Financial Economics (JOURNAL OF FINANCIAL ECONOMICS)-Vol. 95, Iss: 1, pp 41-61
TL;DR: This article found that family firms are less tax aggressive than their non-family counterparts, ceteris paribus, which suggests that family owners are willing to forgo tax benefits to avoid the non-tax cost of a potential price discount, which can arise from minority shareholders concerned with family rent-seeking masked by tax avoidance activities.
About: This article is published in Journal of Financial Economics.The article was published on 2010-01-01 and is currently open access. It has received 973 citations till now. The article focuses on the topics: Corporate tax & Tax avoidance.
Citations
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TL;DR: In this article, the tax impact of foreign investors' interests within a host developing economy was examined, and the analysis of the dynamic panel data with a system GMM estimator showed significant positive relationships between foreign investors interests and the measures of corporate tax avoidance among large Malaysian companies.
3,631 citations
TL;DR: A review of tax research can be found in this article, which surveys four main areas of the literature: (1) the informational role of income tax expense reported for financial accounting, (2) corporate tax avoidance, (3) corporate decision-making including investment, capital structure, and organizational form, and (4) taxes and asset pricing.
1,436 citations
TL;DR: In this paper, the authors examine how family firms differ from non-family firms along five broad categories of managerial decisions, including management processes, firm strategies, corporate governance, stakeholder relations and business venturing.
Abstract: A growing body of research shows that family firms are different from other organizations in significant ways. In this paper we review this literature by examining how family firms differ from nonfamily firms along five broad categories of managerial decisions. These categories encompass a set of key organizational choices concerning management processes, firm strategies, corporate governance, stakeholder relations and business venturing. We argue that socioemotional wealth or affective endowment of family owners explain many of these choices. We also examine some contingency factors (namely family stage, firm size, firm hazard, and the presence of nonfamily shareholders) that moderate the influence of socioemotional wealth preservation as a point of reference when making managerial decisions in family firms. Lastly, we explore the firm performance consequences of family ownership.
1,381 citations
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TL;DR: In this article, a large sample of U.S. firms for the period 1995-2008 was used to show that corporate tax avoidance is positively associated with firm-specific stock price crash risk, which is consistent with the following view: tax avoidance facilitates managerial rent extraction and bad news hoarding activities for extended periods by providing tools, masks, and justifications for these opportunistic behaviors.
Abstract: Using a large sample of U.S. firms for the period 1995-2008, we provide strong and robust evidence that corporate tax avoidance is positively associated with firm-specific stock price crash risk. This finding is consistent with the following view: Tax avoidance facilitates managerial rent extraction and bad news hoarding activities for extended periods by providing tools, masks, and justifications for these opportunistic behaviors. The hoarding and accumulation of bad news for extended periods lead to stock price crashes when the accumulated hidden bad news crosses a tipping point, and thus comes out all at once. Moreover, we show that the positive relation between tax avoidance and crash risk is attenuated when firms have strong external monitoring mechanisms such as high institutional ownership, high analyst coverage, and greater takeover threat from corporate control markets.
1,075 citations
TL;DR: In this article, a large sample of U.S. firms for the period 1995-2008 was used to show that corporate tax avoidance is positively associated with stock price crash risk.
972 citations
References
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TL;DR: In this paper, the authors show that standard errors of more than 3.0% per year are typical for both the CAPM and the three-factor model of Fama and French (1993), and these large standard errors are the result of uncertainty about true factor risk premiums and imprecise estimates of the loadings of industries on the risk factors.
6,064 citations
TL;DR: The authors investigated the relation between founding-family ownership and firm performance and found that family ownership is both prevalent and substantial; families are present in one-third of the S&P 500 and account for 18 percent of outstanding equity.
Abstract: We investigate the relation between founding-family ownership and firm performance. We find that family ownership is both prevalent and substantial; families are present in one-third of the S&P 500 and account for 18 percent of outstanding equity. Contrary to our conjecture, we find family firms perform better than nonfamily firms. Additional analysis reveals that the relation between family holdings and firm performance is nonlinear and that when family members serve as CEO, performance is better than with outside CEOs. Overall, our results are inconsistent with the hypothesis that minority shareholders are adversely affected by family ownership, suggesting that family ownership is an effective organizational structure. FOUNDING-FAMILYOWNERSHIPAND CONTROL in public U.S. firms is commonly perceived as a less efficient, or at the very least, a less profitable ownership structure than dispersed ownership. Fama and Jensen (1983) note that combining ownership and control allows concentrated shareholders to exchange profits for private rents. Demsetz (1983) argues that such owners may choose nonpecuniary consumption and thereby draw scarce resources away from profitable projects. Shleifer and Vishny (1997) observe that the large premiums associated with superiorvoting shares or control rights provide evidence that controlling shareholders seek to extract private benefits from the firm. More generally, firms with large, undiversified owners such as founding families may forgo maximum profits because they are unable to separate their financial preferences with those of outside owners.1 Families also often limit executive management positions to family
4,923 citations
TL;DR: The authors found that the classic owner-manager conflict in non-family firms is more costly than the conflict between family and nonfamily shareholders in founder-CEO firms, and that the conflicts between family shareholders in descendant- CEO firms are more costly.
2,857 citations
TL;DR: This article examined the impact of measuring accruals as the change in successive balance sheet accounts, as opposed to measuring the accruality directly from the statement of cash flows. But their primary finding is that studies using a balance sheet approach to test for earnings management are potentially contaminated by measurement error in accrual estimates.
Abstract: This paper examines the impact of measuring accruals as the change in successive balance sheet accounts, as opposed to measuring accruals directly from the statement of cash flows. Our primary finding is that studies using a balance sheet approach to test for earnings management are potentially contaminated by measurement error in accruals estimates. In particular, if the partitioning variable used to indicate the presence of earnings management is correlated with the occurrence of mergers and acquisitions or discontinued operations, tests are biased and researchers are likely to erroneously conclude that earnings management exists when there is none. Additional results show that the errors in balance sheet accruals estimation can confound returns regressions where discretionary and non-discretionary accruals are used as explanatory variables. Moreover, we demonstrate that tests of market mispricing of accruals will be understated due to erroneous classification of “extreme” accruals firms.
1,368 citations
TL;DR: In this paper, the authors investigate the impact of the founding family ownership structure on the agency cost of debt and find that it is common in large publicly traded firms and is related to a lower cost for debt financing.
1,279 citations