The Second Generation Succession And Corporate Tax Burden

The second generation of family firms in China have begun to take over the management of business in various aspects and gradually grasp greater power.The level of tax burden is not only directly related to business decision making,but also further affects firm value.Therefore,changes in tax burden level have become an unavoidable key issue in process of the second generation succession.This paper uses Chinese Ashare listed family firms from 2008 to 2018 as a sample to study relationship between the second generation succession and the level of tax burden.The research found:(1)After the second generation succession,the tax burden level of listed family firms rises.This conclusion is still robust after changing tax burden measurement method,the PSM-DID model solving endogenous problem and the placebo test.(2)The mechanism test shows that the increase in tax burden after the second generation succession is mainly due to the inheritance of explicit capital and implicit capital.The inheritance of explicit capital promotes the establishment of effective internal supervision mechanism,thereby inhibiting tax avoidance and leading to an increase in ETR(effective tax rate).The implicit capital is so irreplaceable and unique that political connections could be bieak during the second generation succession,leading to less tax incentives and higher ETR.(3)Further analysis found tax burden increases more obviously after succession when the first generation was in power.Compared with the second generation cultivated locally,successors with overseas backgrounds alleviated the impact of succession on increasing ETR by adopting advanced tax avoidance knowledge and radical tax avoidance policies.From the perspective of economic consequences,higher ETR after the second generation succession impairs firm value but increases dividend payment,indicating that although facing the "dilemma" of heavier tax burdens,family firms still tend to send positive signals to market by issuing additional dividends.