How inheritance law affects family firm performance: Evidence from a natural experiment

Gam, Yong Kyu; Kang, Min Jung; Park, Jun-Ho; Shin, Hojong

doi:10.1016/j.pacfin.2019.101243

Cited by 6 publications

(8 citation statements)

References 34 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…This is one of the highest inheritance tax rates among OECD economies. In addition, the 1991 inheritance law reform in Korea stipulates an equal distribution of the property of a deceased person to all descendants, regardless of their birth order, gender, or marital status (Gam et al, 2020).…”

Section: Succession Periodmentioning

confidence: 99%

R&D investment decisions in business groups: Evidence from a natural experiment

Choi

Gam³

et al. 2021

Corporate Governance

Self Cite

View full text Add to dashboard Cite

Research Question/Issue: This paper examines R&D investment decisions in firms under a pyramidal ownership structure in the context of South Korea.Research Findings/Insights: Using the Monopoly Regulation and Fair Trade Act, which places limits on group affiliates' equity investments, we provide new evidence that controlling owners tend to increase long-term R&D expenditures more in firms that are largely subject to the equity investment regulation in South Korea. Moreover, this result is more significant for firms for which the owners have low cash-flow rights, firms located in the lower layers of the pyramid, and firms that hold less equity shares than do other group affiliates.Theoretical/Academic Implications: This study contributes to the literature that focuses on R&D investment decisions by providing empirical support regarding how firms' relative status within their business group influences the firms' R&D investment decisions in South Korea.Practitioner/Policy Implications: This study provides important insight into the positive policy implications of the equity investment regulation on R&D investments for Korean business groups.

show abstract

Section: Succession Periodmentioning

confidence: 99%

R&D investment decisions in business groups: Evidence from a natural experiment

Choi

Gam³

et al. 2021

Corporate Governance

Self Cite

View full text Add to dashboard Cite

show abstract

“…This contrasts with the recent findings by Gam et al . (2020), who focus on how the 1991 Korean inheritance law change affects a family firm's performance rather than risk‐taking incentives. Our work explains how cultural factors shape and affect the scope of succession games within family firms.…”

Section: Introductionmentioning

confidence: 99%

Family Feud: Succession Tournaments and Risk‐Taking in Family Firms*

Lee

Shin

Yun

2023

Asia-Pac J of Fin Stud

Self Cite

View full text Add to dashboard Cite

We identify succession as a novel determinant of risk-taking in family firms. We find significantly higher risk-taking (mergers and acquisitions and cash flow volatility) and lower operating efficiency in firms controlled by families with multiple sons during the pre-rather than the postsuccession period compared to family firms with one or no sons. Presuccession risk-taking by sons decreases the following inheritance law amendments that require sharing of wealth among heirs, bolstering the causal interpretation of our findings. An infusion of outside talent via daughters' marriages also alleviates the relative rank-seeking behaviors of sons during succession tournaments.

show abstract

“…Hwang and Kim (2016) show that the controlling families use related-party transactions to maintain their control over affiliated firms during succession periods. The results of Gam et al (2020) suggest that sibling rivalries during successions alter firm performance. Finally, Shin (2020) observes that some group controlling shareholders use intragroup mergers to transfer control to heirs and avoid inheritance tax.…”

Section: Chaebols In the Finance Literaturementioning

confidence: 98%

“…Family feuds during succession periods might also affect chaebols and their affiliates. Gam et al (2020) cite the example of Shinsegae, CJ, and Hansol that are spinoffs of Samsung group. Finally, the misbehavior of some chaebol owner families raises hostility among the Korean society.…”

Section: Characteristics Of Chaebolsmentioning

confidence: 99%

See 1 more Smart Citation

The Korean market and business groups: three essays on the pricing, valuation and policies of Korean listed firms

Ducret

View full text Add to dashboard Cite

This dissertation presents three essays on the Korean market and business groups. In Korea, large business groups called chaebols played and continue to play a prominent role in the economy. While the existing literature is primarily focused on the period of the 1997 Asian financial crisis, this dissertation analyzes the subsequent period. The beginning of the twenty-first century saw the rise of Korea as a global player and the emergence of Korean firms as leaders in several key industries. This dissertation explores research opportunities opened up by this recent evolution in three empirical studies. The first essay documents the “Korea discount”, which refers to the undervaluation of the Korean stock market. Despite practitioner interest, scholars did not address this topic. This article fills this literature gap and provides the first empirical evidence of this phenomenon. The Korea discount persists despite reforms aiming at reaching international standards. The study shows that the phenomenon affects both chaebol and non-chaebol firms. This observation suggests that chaebols are not the direct cause of the Korea discount contradicting a common belief. The second study exploits the revenue shock triggered by the COVID-19 pandemic to examining the value of business group affiliation during an economic downturn. The analysis reveals a switch in the value of affiliation as the crisis unfolded. The discount observed at the beginning of the crisis turned into a premium when the stock market started its recovery. Financial and governance risks appear as important drivers of variations in the value of affiliation. In addition to extend the growing COVID-19 literature, this study complements the literature on chaebol and crisis with a new empirical framework. The third essay examines the effect of affiliation on firm performance and firm policies. Overall, affiliation with a chaebol is associated with a higher firm value and a lower firm profitability. The results show that the intensity of the performance effect of affiliation depends on group characteristics such as size, diversification, and leverage. The analysis of corporate policies confirms the high level of control centralization of chaebols. Indeed, the results show that a number of chaebols conduct group-level strategies and apply homogeneous policies to their affiliates. This study contributes to the chaebol literature by documenting the association between affiliation and firm outcomes. The analysis makes also empirical and methodological contributions for business group literature by highlighting the relevance to account the heterogeneity between business groups in analysis of the affiliation effect.

show abstract

How inheritance law affects family firm performance: Evidence from a natural experiment

Cited by 6 publications

References 34 publications

R&D investment decisions in business groups: Evidence from a natural experiment

R&D investment decisions in business groups: Evidence from a natural experiment

Family Feud: Succession Tournaments and Risk‐Taking in Family Firms*

The Korean market and business groups: three essays on the pricing, valuation and policies of Korean listed firms

Contact Info

Product

Resources

About