Performance Effects of the Transition from Family Managed Firms to Professionally Managed Firms

Abstract

This study explores whether, when, and how the transition from family to professional management leads to better performance in the context of Japanese firms from 1962 to 2004. In order to avoid endogeneity, we employ the propensity score matching and difference-in-difference technique and find evidence that family firms that transition from family to professional CEOs outperform firms that maintain family leadership. This performance improvement is more pronounced when families maintain strong control but leave no legacy behind and when firms are in highly competitive and high growth industries. We also find evidence that improvement under professional CEOs is mainly attributable to cost saving measures.