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Institutions, Globalisation and Empowerment

Institutions, Globalisation and Empowerment

Edited by Kartik Roy and Jörn Sideras

This book argues that the capacity of a country to develop, and the levels of economic and social development achieved, depend more on the institutional parameters within which the development policies are implemented than on the policies themselves. It contends that forces of globalisation influence individual countries’ economic and social institutions.

Chapter 12: Estate Taxes and Family-run Firms: An Empirical Study of Publicly Traded Corporations in China, Hong Kong and Taiwan

Kam-Ming Wan, Shi-Jun Liu and Hsihui Chang

Subjects: economics and finance, institutional economics, international economics


12. Estate taxes and family-run firms: an empirical study of publicly traded corporations in China, Hong Kong and Taiwan* Kam-Ming Wan, Shi-Jun Liu and Hsihui Chang INTRODUCTION This chapter examines the effect of costs of wealth conservation across generations and government policy regarding ownership concentration on the prevalence of family-run firms in China, Hong Kong and Taiwan. If individual investors are not restricted from controlling any publicly held corporations, we argue that higher costs of wealth preservation across generations, particularly inheritance taxes, lower the formation of familyrun firms. Our empirical results support this claim. We find that family-run firms are the least common in China among these regions because the Chinese government disallows individual investors from holding concentrated ownership in any publicly traded firms. We also find that family-run firms are most common in Hong Kong because of its low tax rate on estates and the ease with which inheritance taxes can be avoided. To the best of our knowledge, this chapter is the first to examine and document the significance of family-run firms in these regions. Current research has underscored the importance of the family firm as an economic organization around the world.1 For example, La Porta, Lopez-De-Silanes and Shleifer (hereafter LLS, 1999) examine the stock ownership of the 20 largest publicly traded companies around the major stock markets. They find that about 30 per cent of their sample firms are family firms. Bhattacharya and Ravikumar (2001) find that family firms account for 40 per cent of...

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