Family involvement and proactive tax management behaviour in private family SMEs
International Journal of Entrepreneurial Behavior & Research
ISSN: 1355-2554
Article publication date: 26 August 2022
Issue publication date: 17 January 2023
Abstract
Purpose
This paper investigates whether board composition, a family chief executive officer (CEO) and the firm's managerial capabilities affect proactive tax management in family small and medium-sized enterprises (SMEs). The main statement is that the professionalisation of corporate government and management practices explains the difference in tax avoidance behaviour in closely held family SMEs.
Design/methodology/approach
Using the 2012 Spanish thin-capitalisation rule as a quasi-experiment, the authors estimate panel regressions with firm fixed effects and robust standard errors. This model represents a triple difference-in-differences combined with propensity score matching (PSM-DID).
Findings
Analysis shows that having a high proportion of non-family board members and a high endowment of managerial capabilities lead to tax liability optimisation in family SMEs. Conversely, familial boards and family SMEs with low managerial capabilities lack enough expertise to weigh the costs of tax avoidance over the benefits, resulting in a reluctance to engage in tax optimisation behaviours. Alike, results show no significant relation between CEO's family affiliation and tax management behaviour.
Practical implications
When implementing fiscal policies, the specific needs of family SMEs should be considered, and how these needs interact with corporate governance and managerial mechanisms. Moreover, policymakers need a deeper understanding of family SMEs in order to develop policies appropriate to their characteristics. A more comprehensive knowledge of how family firm heterogeneity affects corporate decisions, such as indebtedness and fiscal decisions, may improve public policies.
Originality/value
This study addresses the issue of tax behaviour in family SMEs in a particular event that implies a specific logic to weigh the pros and cons of each alternative: reducing debt or paying more taxes. This study’s conclusions are based on a model that deals with potential endogeneity problems, which avoids bias in the findings.
Keywords
Acknowledgements
The authors are grateful for the support of the Cátedra de Empresa y Humanismo - Universidad de Valencia, España.
Citation
Clemente-Almendros, J.A. and González-Cruz, T. (2023), "Family involvement and proactive tax management behaviour in private family SMEs", International Journal of Entrepreneurial Behavior & Research, Vol. 29 No. 1, pp. 218-244. https://doi.org/10.1108/IJEBR-01-2022-0021
Publisher
:Emerald Publishing Limited
Copyright © 2022, Emerald Publishing Limited