eThesis - School of Business electronic theses

The research objective is to examine intergenerational transfers of firms and especially the effects of tax alleviations to intergenerational transfers of family firms on economy’s efficiency. The research is a literature survey on theoretical models of intergenerational transfer of firms. The study begins with a brief summary of the ongoing public discussion and the political decisions that have been made to ease intergenerational business transfers of family firms. This is followed by a short survey of economics of entrepreneurship. The third chapter discusses the transfer of tacit knowledge and entrepreneurial skills to the following entrepreneurial generation. In the fourth chapter, the issue of tax alleviations to Intergenerational transfer of family firms is studied. According to my research, it seems that tax alleviations on continued family firms are not an efficiency enhancing policy for the economy. A preferential tax treatment of intergenerational transfer of a firm has efficiency diminishing effects, if the enterprise stays in family control, while it would do better off under the leadership of an outsider. Also, the positive effects of creative destruction seem to dominate the costs saved by inducing intergenerational transfers of family firm transfers by tax alleviations. The results suggest that an efficient government policy is to support the creation of trust between market participants, so that valuable tacit entrepreneurial knowledge would be efficiently transferred to following entrepreneurial generation.