Avoiding inheritance taxes in family firms

This article documents a novel way to transfer control in family firms while avoiding inheritance taxes: intragroup mergers. I provide evidence that avoiding inheritance taxes is the motivation behind intragroup mergers in Korea. In 1999, Korea initiated a tax reform that bumped up personal inheritance taxes by 25 percentage points. In the posttax-reform period, I find that family firms increase stock-for-stock intragroup mergers involving targets owned by heirs. Specifically, firms with heavy inheritance taxes acquire affiliates owned by heirs, who then convert private target shares into acquirer shares while avoiding inheritance taxes.