The Role of Business Succession
in Environmental Behaviors of Family SMEs
○ Tianyi Shi * , Hakaru Iguchi * * , Hajime Katayama * * *１ ． Introduction
Because small and medium-sized enterprises (SMEs) constitute the majority of businesses,
their aggregate environ mental impact is non-negligible (OECD, 2015). However, SMEs aregenerally less proactive in their sustainability efforts than large companies (Brammer et al.,2012; Cassels and Lewis, 2011), which motivate previous studies to examine the determinants ofSMEs’ sustainability practices. This study extends the literature by exploring whether SMEs’
environmental behaviors are shaped by uncertainty about managerial succession to the next
generation that is critical, especially for family SMEs’ continuity. We hypothesize that thepresence of a potential successor encourages a family SME to make long-term environmental
investments, because it lowers the likelihood of business closu re due to failure in succession andthereby increases the likelihood of recouping the investments. We also hypothesize that a family
SME is more eager for daily environmental practices if there is a po tential successor thanotherwise, because the current CEO is motivated to ingrain good practices into the organization
for its future. This study will examine therelevanceofthesehypotheses

byTable 1: Esti mation Results# of Env. Practices

using

(1)

firm-level survey data.

Subjective Succession Prob.

Env. Investment(2)0.144 *** 0.094(0.048)(0.108)-1.580 ***(0.605)0.038(0.122)-0.004(0.122)-0.113(0.124)-0.115(0.135)1.451 **
(0.657)1.326 **
(0.640)1.799 ***
(0.633)2.181 ***
(0.641)-0.548(0.425)-0.583(0.422)-0.800 *(0.427)-1.022 **(0.453)

Subjective Succession Prob.
×CEO Age 40s (d)２ ． Data
To test our hypotheses, a CEO survey was

×CEO Age 50s (d)conducted in 2016. The sample consists of

×CEO Age 60s (d)15,111 SMEs located in special wards of Tokyo.

×CEO Age 70s (d)We obtained responses from 1,340 firms with aCEO Age 40s (d)responserateof8.7%.

Werestrict

ourobservations to family firms where the business

CEO Age 50s (d)succession problem is particularly relevant. ForCEO Age 60s (d)thisCEO Age 70s and above (d)purpose,weuse

theownership-based

definition (Astracha n & Kolenko, 1994) for(3)0.094(0.254)0.024(0.254)0.002(0.259)0.021(0.290)Note 1: Robust standard errors in parentheses for column (1), while we show thestandard errors in parentheses for column (2) and (3). (d) means a dummyfamily owned firms.

variable.
Note 2: *, **, and *** imply that the coefficient is significantly different from zero atthe 10%, 5%, and 1% levels, respectively.
Note 3: To save space, we do not report the coefficients of control variables.

***
***

Graduate School of Commerce, Waseda University
1-6-1 Nishiwaseda, Shinjuku -ku, To kyo 169-8050 E-mail: tianyi@ruri.waseda.jp
Department of Management and Information, Kyoto College of Economics
Graduate School of Comme rce, Waseda University

To understand the effect of the uncertainty about succession, we construct a variable using thequestion, “(h)ow likely is it that there will be a successor to take over the firm?", for which weasked the respondents to report probabilistic expectations ( range from 0 to 1). Hereafter, thisvariable is referred to as “subjective succession probability”. We also asked CEOs whether theirfirms adopt each of the 19 environmental practices listed on the survey questionnaire, such as
requiring employees to reduce copies, which reflect a firm’s daily environmental practices. The
number of practices for which CEO answered “yes” is used as a dependent variable. We furtheraskedthe respondents whether they haveFigure 1: Marginal Effects of Subjective Succession
Probability on Environme ntal Invest ment

implemented investments in energy saving
and energy efficiency improvement whichreflect

afirm’slong-term

environmental

investment. We created a dummy variable thattakes the value of one if the firm makes theenvironmental

investment(s)andzeroifotherwise and used this variable as anotherdependent variable.
３ ． Results
As in Column (1) of Table 1 (Poisson model), subjective succession probability is found to bepositively and significantly associated with the numbe r of environmental practic es. In contrast,subjective succession probability is not significantly associated with environmental investments,
as presented in Column (2) (Probit model). To account for the possibility that the effect ofsubjective succession probability on environmental investments depends on CEO’s retirement
plan, we interacted subjective succession probability with dummies for CEO age categories (thatpartially capture CEOs’ career horizons). As in column (3) (Probit model), the coefficients on all
interaction terms are found to be positive and significant. Figure 1 presents marginal effects ofsubjective succession probability across CEO age categories. The results show that the marginal
effect is negative and significant when CEO age is bel ow 40, while being positive and significant
when CEO age is above 70 (i.e., when CEO will retire in near future) .
４ ． Conclusion
According to our results, CEOs' expectations about succession matter to their firms' eagerness
for daily environmental practices that may effectively work as knowledge transfer to theirsuccessors. CEOs who will retire in near future seem to consider environmental investments as
beneficial if they think that their firms are likely to be succeeded, while younger CEOs might
consider other long -term investments to be more valuable for their successors.