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