How Inheritance Law Affects Family Firm Performance: Evidence from a Natural Experiment

Posted: 10 Nov 2019

See all articles by Yong Kyu Gam

Yong Kyu Gam

Institute of Financial Studies, Southwestern University of Finance and Economics

Min Jung Kang

University of Michigan at Flint - School of Management

Junho Park

Singapore Management University - Lee Kong Chian School of Business

Hojong Shin

California State University, Long Beach

Date Written: October 9, 2019

Abstract

We argue that changes in the inheritance system affect the incentives toward sibling rivalry among descendants, thereby having 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 the descendants, we find that performance and operating growth rate in family firms show a significant enhancement compared to those of non-family firms. Moreover, the positive effects are greater for family firms that undertake a business succession with multiple sons and married daughters. Overall, our results suggest that changing to equal bequests of inheritance brings positive effect on firm value by providing better-aligned incentives to heirs in family firms. We conclude our paper by discussing implications of our findings for current generations in family firms.

Keywords: Family Firm, Inheritance Law, Succession, Performance, Growth

JEL Classification: G30

Suggested Citation

Gam, Yong Kyu and Kang, Min Jung and Park, Junho and Shin, Hojong, How Inheritance Law Affects Family Firm Performance: Evidence from a Natural Experiment (October 9, 2019). Available at SSRN: https://ssrn.com/abstract=3468308

Yong Kyu Gam

Institute of Financial Studies, Southwestern University of Finance and Economics ( email )

55 Guanghuacun St
Chengdu, Sichuan 610074
China

Min Jung Kang

University of Michigan at Flint - School of Management ( email )

303 E. Kearsley Street
Flint, MI 48502
United States

Junho Park

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Hojong Shin (Contact Author)

California State University, Long Beach ( email )

1250 Bellflower Boulevard
Long Beach, CA 90840
United States
517-515-0717 (Phone)

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