Corporate Governance and Firm Performance: An Implication from Japanese Listed Family Firms

The corporate governance of Japanese listed family firms is an outlier in two aspects. First, among listed family firms in the world, it is a unique phenomenon that many founding families keep sending top managers without owning substantial stock. Second, among listed firms in Japan, only family firms take the Anglo-American style top managers’ incentive mechanism, particularly substantial manager ownership, although their shareholder monitoring is weak, like Japanese non-family firms. Heir managing firms, in which top managers are picked from small family pools, perform slightly better than non-family firms in Japan that suffered low accounting performance compared to Anglo-American firms. 

Although previous studies analyze both the relationship between family ownership and firm performance in listed family firms and the relationship between management ownership and firm performance in listed firms in general, little is known about the effect of management ownership in family firms, because it has been synonymous with family ownership. By using the unique sample of Japanese listed family firms, which includes both low family ownership firms and high family ownership firms, we distinguish the effect of management ownership and that of family ownership on family firm performance. Our regression analysis shows that while management ownership is effective in boosting performance even with less than 5% family ownership, family ownership is not found to boost performance unless it is more than 20%.

Our study suggests that among the two factors of the Anglo-American corporate governance model: shareholder monitoring and management incentive, management incentive may make a difference in firm performance even without strong shareholder monitoring.