The Determinants of Tax Aggressiveness in Family Firms: An Investigation of Italian Private Family Firms

Giulia Flamini,Luca Gnan,Paola Vola,Lucrezia Songini

doi:10.3390/su13147654

Giulia Flamini, Luca Gnan + Show 2 more

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https://doi.org/10.3390/su13147654

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Abstract

A recent stream of research has focused on tax aggressiveness, the downward management of taxable income through tax planning activities, and has analyzed its antecedents and consequences, mainly on public companies. Only very few studies, however, have been carried out in the context of private family business and have investigated whether some family firms are more tax aggressive than others, considering some specific features of family firms, such as their distinctive agency conflicts and socioemotional wealth. In this paper, we investigate the antecedents of tax aggressiveness in a sample of private Italian family firms. Our research findings show that tax aggressiveness is positively associated with ownership concentration, the presence of independent members in the board, and the adoption of reporting mechanisms. Instead, we found a negative relation between tax aggressiveness and the use of both strategic planning and a combination of managerial control systems (both planning and reporting mechanisms). We did not find any relation between family CEO and tax aggressiveness. In summary, overall, our findings show that family involvement in ownership, an independent board. and managerialization (the use of managerial mechanisms) are relevant antecedents of tax aggressiveness in private family businesses.

Highlights

With the aim of adding contributions to research, we propose a framework that explains why some family firms are reluctant to engage in aggressive tax strategies, while others show a greater inclination towards tax aggressiveness
We contribute to research on tax aggressiveness by studying its antecedents in a context—that of private family firms—that has been largely neglected in prior research on tax aggressiveness
We believe that looking at tax aggressiveness in private family firms is important both theoretically and empirically

Summary

Introduction

From a stakeholder theory perspective [15], tax aggressiveness is ethically questionable because firms are expected to pay a fair amount of taxes, providing the funds for public services such as healthcare, education, and infrastructure, public services from which they benefit too, either directly or indirectly

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Conclusion