Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1279: The Rise and Decline of Industrial Foundations as Controlling Owners of Swedish Listed Firms: The Role of Tax Incentives

Magnus Henrekson (), Dan Johansson () and Mikael Stenkula ()
Additional contact information
Magnus Henrekson: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Dan Johansson: Örebro University School of Business
Mikael Stenkula: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden

Abstract: Beginning in the interwar period, industrial foundations became a vehicle for the corporate control of large listed firms in Sweden, but in the 1990s they were replaced by wealthy individuals who either directly own controlling blocks or who own them through holding companies. We study potential explanations for this change and propose two taxation-related candidates: shifts in the relative effective taxation across owner types and the dismantling of the inheritance taxation that prevented the generational transfer of the ownership of large controlling blocks. Our analysis exploits newly computed marginal effective capital income tax rates across capital owners, accounting for all relevant factors, including rules governing tax exemptions. We show that the 1990–91 tax reform, abolition of the wealth tax for controlling owners in 1997, 2003 tax exemption of dividends and capital gains on listed stock for holding companies with a voting or equity share of at least 10 percent, and abolition of the inheritance and gift taxes in 2004 reversed the rules of the game. Recently, control has largely been wielded through direct ownership, and the role of foundations is rapidly declining. These findings point to the importance of tax incentives for the use of foundations as the control vehicles of listed firms.

Keywords: Corporate governance; Entrepreneurship; Family firms; Foundations; Owner-level taxation

JEL-codes: H20; K34; L26; N44

31 pages, First version: May 20, 2019. Revised: September 9, 2019.

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