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

Abstract The most distinctive characteristic of Japanese heir managing firms is that founding families keep sending top management without influential voting rights in a substantial number of cases. Why is it possible? To answer the question, we draw attention to the huge difference of managerial ownership of heir managing firms and listed non-family firms in Japan. Does management ownership (vs. family ownership) drive performance in Japanese heir managing firms? Our regression analysis reveals that management ownership is positively correlated with firm performance, as measured by ROA and ROE. Importantly, this positive effect is observed even in firms with low family ownership, suggesting that management incentives play a crucial role in driving performance. Our research suggests that management’s equity incentives may play a crucial role in driving firm performance, even in the absence of strong shareholder-oriented corporate governance in stakeholder systems.