Publication Type
Journal Article
Version
acceptedVersion
Publication Date
2-2020
Abstract
We argue that changes in the inheritance system affect incentives leading to sibling rivalry among descendants and therefore have a material impact on family firm performance. Using South Korea's 1991 inheritance law reform that stipulates the equal distribution of a deceased person's property to descendants, we find that the performance and operating growth rate in family firms show significant enhancement compared with those of nonfamily firms. Moreover, the positive effects are greater for family firms that undergo a business succession with multiple sons and married daughters. Overall, our results suggest that changing to equal bequests of inheritance has a positive effect on firm value by providing better-aligned incentives to heirs in family firms. We conclude our paper by discussing the implications of our findings for current generations in family firms.
Keywords
Family firms, inheritance system, firm value, South Korea
Discipline
Asian Studies | Corporate Finance | Entrepreneurial and Small Business Operations | Estates and Trusts
Publication
Pacific-Basic Finance Journal
Volume
59
First Page
1
Last Page
20
ISSN
0927-538X
Identifier
10.1016/j.pacfin.2019.101243
Publisher
Elsevier
Embargo Period
5-31-2021
Citation
GAM, Yong Kyu; KANG, Min Jung; PARK, Junho; and SHIN, Hojong.
How inheritance law affects family firm performance: Evidence from a natural experiment. (2020). Pacific-Basic Finance Journal. 59, 1-20.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/6725
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.pacfin.2019.101243
Included in
Asian Studies Commons, Corporate Finance Commons, Entrepreneurial and Small Business Operations Commons, Estates and Trusts Commons