Family firms, tax avoidance, and socioemotional wealth: evidence from tax reform in Taiwan

In 2018, Taiwan implemented a tax reform package that abolished the imputation regime, providing managers stronger incentive to engage in tax avoidance. This paper employs this unique setting to examine how the Taiwan’s 2018 tax reform affects the relation between family firms and tax avoidance based on a socioemotional wealth (SEW) view. I find that family firms on average exhibit lower tax aggressiveness than nonfamily firms. Further, I discover that family firms are disinclined to engage in tax avoidance to a greater extent after the policy change. Moreover, I determine that the negative association between family firms and tax avoidance is more salient for firms with strong control-enhancing mechanisms. Further, additional analyses indicate that family firms may also perceive tax avoidance to be potentially risky and value-destructive and thus are disinclined to engage in it. Collectively, my evidence is consistent with the predictions under the SEW view.