Are non-family successors all the same? Inside-promoted vs. outside-sourced

This paper studies the differences in post-succession changes in managerial styles and operating performance among three types of successors, namely family successors, inside-promoted non-family successors and outside non-family successors. The data is drawn from Taiwan, where family firms dominate the domestic stock market and there exists a rich, lengthy data set available for analysis. We find that firms having undergone outside non-family successions increase operating performance. This result, however, comes with the cost of managerial short-termism, leading to a reduction in long-term investment. On the other hand, outside non-family successors also improve investor relationships while impairing employee and bank relationships. In contrast, inside-promoted non-family successors tend to increase long-term investment, which differentiates them from family successors who do not adjust investment policies after successions; elsewhere these two types of successors' managerial styles appear to be relatively similar.