ABSTRACT

A key objective for owners of family businesses is to pass their businesses on to the next generation of family members (Morris et al., 1997). Many family business owners are concerned that the fiscal regime, particularly capital taxes, can put at risk the inter-generational transfer of businesses (J.L. Ward, 1987). Policymakers and practitioners can introduce policies that encourage the survival of family businesses. They are, however, reluctant to introduce new policies or change the tax regime without reliable information about the scale, nature and economic contribution of family business activity. There is, therefore, a need for academics, practitioners and policy-makers to carefully define, identify and understand their target group of analysis. Policy-makers are interested in reliable information that indicates whether family businesses report superior levels of performance than non-family businesses (Shanker and Astrachan, 1996). If family businesses were associated with superior business performance than nonfamily businesses, this would be a powerful argument for lowering capital taxes, because of the benefits to the wider economy. Further, if the transfer of businesses between generations of family owners were to lead to enhanced performance (i.e. faster sales revenue and employment growth), then it could be argued that inter-generational transfers are in the interests of the national economy as well as family business owners. If family businesses transferred from one generation to the next performed no better, or worse (i.e. ‘clogs to clogs in three generations’), then there is no clear case for seeking to lower/abolish capital taxes.