Inheritance tax, shareholder protection, and the market value of family firms: A cross-country analysis

We examine the relationshipamong inheritance taxes, shareholder protection, andthe family firms’ market value. Drawing on the familyfirm, corporate governance, and institutional comple-mentarities literature, we argue that inheritance taxesact as external corporate governance mechanisms fordecoupling business families’ socioemotional goals.However, this depends upon minority investor protec-tions. In strong protection countries, the incentives forfamily self-governance created by high inheritancetaxes are offset by the loss of business family autonomyinherent in strong shareholder protection. Using a sam-ple of 284 firms across 31 countries, we provide supportfor these arguments. Results suggest that inheritanceand shareholder protection laws are substitutive exter-nal corporate governance mechanisms to align businessfamily and nonfamily shareholders’ interests

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