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No Successor, No Success? Impact of a Little Son on Business Performance

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  • Kodama, Naomi
  • Murakami, Yoshiaki
  • Tanaka, Mari

Abstract

The dynasty model, which assumes the presence of intergenerational altruism, implies that business owners will have more incentive to improve the firm’s performance if they expect their children to take over the firms. This study empirically examines how top managers’ expectations about future family succession affect the performance of small family firms. Exploiting the sex of the top manager’s first-born child as an instrumental variable for the manager’s expectations about business succession by his child, we find that the existence of a potential family successor has a positive effect on profit. We also find that the presence of a potential family successor induces business expansion and the managers’ actions to enhance performance, such as improving operational efficiency and investing in information technology.

Suggested Citation

  • Kodama, Naomi & Murakami, Yoshiaki & Tanaka, Mari, 2021. "No Successor, No Success? Impact of a Little Son on Business Performance," Journal of the Japanese and International Economies, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:jjieco:v:62:y:2021:i:c:s0889158321000484
    DOI: 10.1016/j.jjie.2021.101169
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    More about this item

    Keywords

    Expectation; Small and medium enterprises; Succession decision; Firm performance; Corporate decision-making;
    All these keywords.

    JEL classification:

    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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