DBJ Discussion Paper Series, No. 1903

Who is the Boss?
Family Control without Ownership in Publicly-traded
Japanese Firms

Morten Bennedsen(University of Copenhagen)Vikas Mehrotra(University of Alberta School of Business)
Jungwook Shim

(Kyoto Sangyo University)
Yupana Wiwattanakantang(National University of Singapore Business School)

April 25, 2019

The aim of this discussion paper series is to stimulate discussion and comment from academics andpolicymakers through a preliminary draft form. This paper is included by permission of theauthor(s) as a tentative material before publication in peer-reviewed journals or books. Copyrightand all related rights are maintained by the author(s). Views expressed in this paper are those of theauthor(s) and do not reflect the views of the Research Institute of Capital Formation or
Development Bank of Japan.

Who is the Boss?
Family Control without Ownership in Publicly-traded
Japanese Firms

Morten Bennedsen,a Vikas Mehrotra,b Jungwook Shim,c Yupana Wiwattanakantangd
April 25, 2019

Abstract
We document that 50% of public listed Japanese family firms are still under the control by
the founding family 50 years after the IPO. The control of top management is persistent evenwhen ownership stakes becomes insignificant and without the use of dual class shares or
pyramids. Examples include eponyms such as Casio, Toyota and Suzuki. The families’
reputation, networks of financiers, and talent correlate with longevity of family control. Our
results challenge the lifecycle view of corporations in advanced economies and highlights theimportance of intangible “family” assets in understanding the evolution of family control.
JEL Codes: G32; L26
Keywords: Family control; Ownership; Succession
a.
b.
c.
d.

Corresponding author. University of Copenhagen, Denmark and INSEAD, Paris, France.
E-mail: Morten.bennedsen@insead.edu
University of Alberta School of Business, Edmonton, Canada.
E-mail: vmehrotr@ualberta.ca
Kyoto Sangyo University, Kyoto, Japan.
E-mail: sim0625@gmail.com
National University of Singapore Business School, Singapore.
E-mail: yupana@nus.edu.sg

We are grateful for helpful comments from Royston Greenwood, Danny Miller and seminar participants atthe Entrepreneurship Theory and Practice conference in Bank of Finland Edmonton, and Beijing University,
Columbia/INSEAD conference on Family Firms 2018, Conference on Family Firms in Lehigh University,
Copenhagen Business School, Development Bank of Japan, European Finance Association meetings,
Hanken School of Economics, INSEAD Brown Bag (economics and finance). This project is also benefited
from the financial support from Singapore Ministry of Education Academic Research Fund Tier 1 grants(R-315-000-111-112 & R315-000-086-133), the visiting scholar program of the Research Institute of Capital
Formation at the Development Bank of Japan, and the Danish National Research Foundation under the Niels
Bohr Professorship.

2“Ever since he was a little boy, his mother always told him, ‘One day you’ll be president.’” 1
About Toyota’s President, Akio Toyoda

1.

Introduction

Family control of the modern corporation is ubiquitous even in countries with welldeveloped capital markets. 2 How founding families keep control over their firms in the faceof growth imperatives is a continuing puzzle. Rajan and Zingales (1996) suggest that the easeof external financing for capital investments dictates both the evolution of founding control
over time, as well as the realized level of growth. Their contention finds support in Frank,
Mayer, Volpin and Wagner (2011), who show that family ownership dilution in the UK andcontinental Europe is largely determined by the firm’s need for external financing for both
capital investments as well as mergers and acquisitions. These studies per force focus oncontrol derived from equity ownership and conclude in favour of finance as the single biggest,
if not the sole, determinant of the loss of founder control over time.
In this study, we extend the literature on family control beyond ownership by studying
the dilution of the founding family’s ownership as distinct from a loss of top management
control. We explore the determinants of how families keep control with little or noownership. Anecdotal evidence exists from other advanced countries including the U.S 3 ,however, they share two features: the use of control enhancing ownership mechanisms, suchas dual class shares or pyramids, and a generally diluted ownership structure with no othersignificant owners. Thus, this is the first large scale sample to document the prevalence of

1 Jason Clenfield and Yuki, Doubting Toyota Prince Defeats Crisis to Prove Self Wrong: Cars, Bloomberg,

November 21, 2013, accessed on January 18, 2018, http://www.bloomberg.com/news/2013-11-20/doubtingtoyota-prince-defeats-crisis-to-prove-self-wrong-cars.html.
2 See, for example, La Porta, Lopez-de-Silanes and Shleifer (1999), Morck, Stangeland and Yeung (2000),

Anderson and Reeb (2003), Morck, Wolfenzon, and Yeung (2005), and Villanlonga and Amit (2006).

3 The J. M. Smuckers Company has been run by the eponymous family for four generations now, even though

the Smuckers’ family equity stake in the firm is now less than 6%. A unique aspect of their share structure isTime Phased Voting. Under this set-up, 1 share in Smuckers equals 1 vote if held for less than 4 years and equals
10 votes if held for more than 4 years. A few other well-established companies such as Ford Motor Company
and the New York Times also have control in the hands of the founding family with very little equity ownership,
albeit in both cases, dual voting shares provide the founding family with majority control.

3
family control without ownership in an advanced country with little use of control enhancing
mechanisms.
We employ a unique dataset of all listed firms in post-war Japan and begin by charting
the evolution of family control from the early 1960s through 2010. Our panel data allow us
to move beyond static analysis and to document the factors that have allowed founding
families in Japan to maintain control over their firms with or without significant ownership.
Unlike the U.S., Japan does not permit dual class voting shares, so the one-share-one-vote rule
applies. Unlike other Asian countries, pyramidal family group ownership, as a rule, is absent
in Japan.4 Thus voting control and ownership go hand in hand and a loss in ownership is
identical to a loss in voting control. Furthermore, our data include family characteristics suchas the educational attainment of the executives, founders, their heirs, as well as details onfamily structure. This allows us to assess the relative importance of finance vs. family assets
in determining the dilution of control by founding families in IPO time.
The literature has used various thresholds such as 25%, 20%, 10% or even 5% of
outstanding shares to define family firms. 5 We find that such cut-offs are ad hoc andexcessively restrictive in describing family control. For instance, based on the ownership cutoff definition, many firms where the founding family holds the top management position, but
has very low ownership stakes, risk being classified as non-family firms. To illustrate wehighlight the three eponymous family firms, Casio, Toyota and Suzuki. Family members havetaken turns to hold the leadership positions as President or Chairman for generations evenwhen the families’ ownership stakes have been diluted to insignificant levels. We generalize
and document that between 10% and 30% of listed Japanese firms are managed by heirs of
the founding family who have little ownership to report.
To our knowledge, this paper is the first documenting the commonplace nature offamily control in the absence of material ownership. Our finding also explains why existing

The famous post-war keiretsu system is not a family-based structure (Morck and Nakamura, 1999 & 2000)
and is largely seen as a web of horizontal cross-shareholdings (Nakatani, 1984) 4.
5 See, for e.g., La Porta, Lopez-de-Silanes and Shleifer (1999), Faccio and Lang (2002), Anderson and Reeb
(2003), Villalonga and Amit (2006), Franks, Mayer, and Rossi (2009), and Foley and Greenwood (2009).
4

4
studies have found a very low number of family firms among large businesses in Japan andelsewhere (e.g., Claessens, Djankov, and Lang, 2000; and Masulis, Pham, and Zein, 2011). We
show that including families that control firms without ownership more than doubles theirshare among Japanese listed firms. We also document the longevity of family involvement
following the firm’s IPO – almost 50% of listed firms are family controlled (managed and/or
owned) up to 50 years following their IPO. We are not aware of corresponding statistics fromother countries.
This paper also contributes to the literature by providing insights into the important
issue of why families exit the firms their ancestors have founded. Existing empirical studies
focus on the dynamics of family ownership and show that finance plays an important role inthe dilution of ownership. Typically this happens when growth imperatives require external
equity infusions, and when equity markets provide a ready source of capital. 6 Wellfunctioning equity markets step in to finance growth, and this process is generally
responsible for the decline of founders’ ownership after she lists her firm.
We show that an important and hitherto overseen determinant of future family
ownership and control is the strength of intangible “family assets” as contended by
Bennedsen and Fan (2014) and Bennedsen et al. (2015). Family assets are the relationshipspecific (Williamson, 1986), and often intangible, investments made by the founding families
that add to firm value, much as organizational capital does.7 Key examples of family assets
are the legacy of the family business as embodied in the family name and reputation, family
networks in business and politics, and the family talent pool.
We document how variation in family assets correlate with variation in time
persistence of family ownership and family control. We include an array of proxies for family

6 For example, Frank, Mayer, and Rossi (2009) show that founding family equity stakes got diluted in the U.K.

largely as a result of capital investments via M&A activity. Helwege, Pirinsky and Stulz (2007) show that theownership by blockholders declines rapidly after the IPO, and that this happens faster for firms with more liquid
stocks. Frank, Mayer, Volpin and Wagner (2011) confirm these findings in a larger international setting, linking
the ease of equity dilution specifically to investor protection, again underscoring the importance of finance indetermining post-IPO ownership decline in the United States. Finally, Klasa (2007) documents that the founding
family’s sale of their controlling interest is correlated to poor performance and firm age among the U.S. firms.
7 See, for e.g., Lev and Radhakrishnan, (2005) and Eisfeldt and Papanikolaou (2013, 2014).

5assets and finance variables in exploring the determinants of the decay in the founding
family’s control over time. Our main results are that more profitable firms, and thosemanaged by younger CEOs, are less likely to transition to lower levels of family control,
whereas firms that need external capital are more likely to do so. We show that family control
is more likely to be maintained in firms that bear the founding family name, have capableheirs 8 and trusted employees. Families also sustain control through establishing a close
partnership with investors. In short, our evidence underscores the joint importance offinancial and family factors in the evolution of ownership and management control.
The rest of the paper is organized as follows. Section 2 presents three cases of Casio,
Toyota and Suzuki to illustrate how families organize control of their companies whenownership is diluted. Section 3 presents our data measuring the evolution of ownership andcontrol of public traded firms in Japan. Section 4 divides firms into four categories dependingon families being dominant owners and/or in control of management. We then describe theevolution of family ownership and family control over management. Section 5 analyses
factors that impact the transition of firms among all four categories of ownership and control
composition. We conclude in Section 6.

2.
Family control in the absence of material ownership: The Casio,
Toyota Motors, and Suzuki Motors Cases
The three well known Japanese companies, Casio, Toyota Motor, and Suzuki Motor illustrate
how the founding family maintains management control in situations where they have very
little ownership. The cases illustrate how families use particular and sometimes elaborate
family assets and governance structures to secure and maintain control of their firms evenwhen they do not have significant ownership stakes.
We describe the ownership evolution as well as management transitions in thesethree firms over a forty-year period spanning 1960-2000 in Figure 1. In all cases, ownership
8 Mehrotra, Morck, Shim and Wiwattanakantang (2013) describes how the practice of adult adoptions, where

founders, faced with either non-existent or inadequate blood heirs, frequently adopt outsiders into the family
and appoint him as a successor, has been a common governance feature in Japanese business families.

6
stakes of the founding families are reduced to insignificant levels by the end of the sampling
period (and in one case were never significant) and yet, as we describe below, scions of thefounding family continue to hold sway over management in important ways. These threefirms reflect different ways that families retain management control even when theirownership is very small: First, Casio illustrates how, even while growth and financial needs
dilute family ownership, the founding family keeps control through a line of very talented
family managers. Second, Toyota Motor Company illustrates how management control canpersist via complex cross ownership and management of companies within the Toyota groupof firms by the extended family of the founder. 9 We note that such a structure of intercorporate control by the extended Toyoda clan is distinct from the well-known keiretsu
structure, which represents a group of firms tied by cross-shareholdings but loosely linked
in terms of management. 10 Third, Suzuki Motor Company, where the family never hadsignificant ownership, illustrates how the practice of adult adoptions can broaden the talentpool for succession purposes and provide able and competent heirs (Mehrotra et al, 2013).
2.1 Casio Computer Co.: Ownership dilution through global expansion.
We start with Casio, the iconic calculator and electronic watch company, and showhow high growth, financed via equity, dilutes founding family ownership over time. We
submit that family talent nevertheless has kept the founding family in control to this day.
Casio was founded in 1946 as Kashio Seisakujo by a team of founders, father and foursons from the Kashio family. The Kashio men worked together to develop the world’s firstelectronic calculator which was launched in 1957. To finance expansion, Casio went public in
1970 on the Tokyo Stock Exchange, with the family retaining 61% of shares. Three years later,
Casio also listed on the Amsterdam Stock Exchange, and on the Frankfurt Stock Exchange in
1979. The net impact of these public offerings was a steep decline in the founding family’s
relative share ownership. Indeed, the family’s direct shareholdings in Casio declined
dramatically to 8% in 1990 (see Figure 1). For comparison, we note that the average

9 See Bennedsen, Henry and Wiwattanakantang (2016).
10 See, among others, Nakatani (1984), Prowse (1992), Flath (1993) and Weinstein and Yafeh (1995).

7
ownership by the least and most restrictive definitions of family firms in Villalonga and Amit(2009) is 16% and 28%. The ownership stake of the Kashio family continued to decline
further, dipping under 6% in 2000 and under 4% in 2014.
In reality, however, the Kashio family has always been running Casio. The Kashio
brothers took turns to hold the top management positions, namely the President and the
Chairman, as well as to serve on its board11. Casio’s first president was the father, and thenhis first son, Tadao, who succeeded him. Tadao with a reputation as a financial wizard served
as president for 28 years, during which period his three younger brothers served on Casio’s
board. Tadao finally retired as president at the age of 71 in 1988 and remained as Casio’s
adviser until his death in 1993. The second brother, Toshio (born in 1925), who was theinventor of many of Casio’s hit products, became Casio’s Chairman from 1988 until his
retirement in 2011 at the age of 86.
The third brother, Kazuo (born in 1929), with an expertise in sales and marketing, led
Casio as its third President from 1988 and assumed dual positions as the both President andChairman after Toshio’s retirement in 2011. The fourth brother, Yuiko (born in 1930), wasthe production chief and served as vice president from 1991 until his retirement in 2014 at
the age of 84.
Kazuo worked with the company well into his 80s to groom his successors which
included his eldest son as well as three nephews. In June 2015 when Casio’s profit hit an alltime high, Kazuo promoted his 49-year-old son, Kazuhiro as the President, while he himself
served as Casio’s executive Chairman. By spring 2019, Kazuo who turned 90 and has beenrunning Casio for more than 30 years, has shown no sign of disengagement from Casio’s
management.12
The largest shareholder group in Casio is represented by financial institutions,followed by foreign investors. The ownership dilution of the founding family was a direct
11 See Casio history at the company website, accessed on January 18, 2018,https://www.casio.co.jp/company/history/.
12Changing of the Guard: Casio president set to hand reins to son, Nikkei Asian Review, May 12, 2015, accessedon January 19, 2018, https://asia.nikkei.com/Business/Companies/Casio-president-set-to-hand-reins-to-son.

8consequence of Casio’s rapid growth financed by equity capital. The presence of the Kashio
founders and heirs in the top management cadre of Casio has not been challenged by thecontinued erosion of their equity ownership in the company, and points to family resources
playing an important role in maintaining control.
2.2 Toyota Motor Corporation: Control through group ownership and strong family assets
Toyota Motor is one of the world’s largest automobile manufacturers, with a market
capitalization at its peak of USD 220 billion in fiscal year 2015. The Toyota case illustrates
how complex ownership and management structures over a group of firms can empower thefamily - even when direct family ownership stakes are insignificant. Specifically, Toyota
Motor Company sat at the apex of the Toyota Group which comprised a network of companies
connected to each other via cross-shareholdings and shared top executives from theextended Toyoda clan.
Given its size and status as a multinational corporation, as well as extremely low directownership stakes of the founding family, Toyota does not fit into the conventional definitionof family firms. Based on widely accepted ownership thresholds (for e.g., 10% of voting
rights), Toyota would be defined as a widely held firm. Table 1 shows Toyota’s ten largest
shareholders at six points in time in the last 50 years. Almost none of its 10 largest
shareholders held more than 5% of outstanding shares from 1950 to 2000. Toyota’s large
shareholders were mostly financial institutions that held their shares for several decades.
Among the top shareholders is Toyota Industries Corporation, which held a stake of 5.3% in2000 and 6.6% in 2015. Setting aside the ownership in Toyota Motor by Toyota Industries,
the family’s direct ownership stake in Toyota Motors was and remains insignificant.
The group name, Toyota, was derived from the founding family name, Toyoda.13 The
founder was Sakichi Toyoda (1867 – 1930) who established Toyota Industries as a successfulloom maker. The second-generation patriarchy was handed to his adopted son-in-law,
Risaburo (born 1884), whose biological son, Kiichiro (born 1894), went on to start Toyota
Motor Company to manufacture cars in 1937. Toyota Motor went through financial difficulty
13Toyota history, Toyota’s website: http://www.toyotaglobal.com/showroom/emblem/history/

9in the 1940s and eventually was on the brink of bankruptcy in 1949. The main house, Toyota
Industries, sent its president, Taizo Ishida, to rescue Toyota Motor. 14 Ishida, who had
inherited the founder spirit, acted as the family’s caretaker (Hino, 2005). Following the deathof the two Toyoda brothers in the same year in 1952, Ishida continued running Toyota until
1961, while grooming young Eiji Toyoda, the founder’s nephew, as the next successor.
Eiji was named as Toyota’s 5th President in 1967. He led Toyota as the chairman andhonorary advisor until his death in 2013 at the age of 100. During his helm, Eiji wasinstrumental in transforming Toyota into the world’s top automobile company anddeveloped what became known as the “Toyota Production System”.
Toyota’s 6th president was Shoichiro Toyoda, who was the first son of Kiichiro andtherefore a designated heir by birth. As the clan’s patriarch, he groomed his younger brother,
Tatsuro, who was promoted to the presidency in 1991. Shoichiro remained as Toyota’s
executive chairman during 1991-1999, and then as honorary chairman and a board member
until 2009. Shoichiro also supervised other Toyota group firms, serving as Aisin’s auditor andDenso’s board until 2015 when he turned 90 years old.
Tatsuro, however, ended his term shortly in 1995 due to health problems. Toyota’s
next three presidents were loyal employees (or sararimen) namely Hiroshi Okuda (19951999), Katsuaki Watanabe (1999-2005), and Fujio Cho (2005-2009). During this high growthdecade, Toyota looked as if it had absolutely transformed itself to become a non-family firm
run by professional managers. The two Toyoda seniors (Eiji and Shoichiro), however, had
continued providing advice on corporate policies, in particular installing Toyoda scions insenior management positions. 15 In fact, by this time, two of the Toyoda family descendents
were promoted as Toyota Motor’s board members.
Akio Toyoda, the only son of Shoichiro, was told by his mother since he was little that

14 Toyota history at the company website.
15 Family

tensions and succession manoeuvring darken Toyota's top ranks, Sentaku, December 2016,
accessed on January 18, 2018, https://www.sentaku.co.jp/articles/view/16445.

10“One day you’ll be president.”16 The family dream came true in June 2009 when 49-years old
Akio was named as Toyota Motor’s 11th President. His appointment came on top of the largest
recall scandal, Toyota’s worst crisis in a century. Perhaps the company needed the Toyoda
name to signal that it was returning to its roots and would restore the values, quality andreputation upon which the business was founded.
Top executives bearing the extended Toyoda name – uncles, nephews, and cousinsfrom the three family branchesRisaburo, Eiji, and Kiichiro – have also served at key Toyotagroup companies. Three sons from the Eiji brnach have run other group firms as president
and chairman for decades. Kanshiro headed Aisin, while Tetsuro has been in charge of Toyota
Industries since 2005. The youngest brother, Shuhei, took the leadership at automotive
component manufacturer and group member firm Toyota Boshoku Corporation (Bennedsen,
Henry, and Wiwattanakantang, 2016), serving as its Chairman since 2015.
The Toyota group illustrates that the founding family’s corporate control can be much
more than the size of the family ownership stake alone would warrant. Backed by theownership stakes of the member firms belonging to the Toyota group, management control
by the Toyoda clan continues unimpeded to present day. Furthermore, the case also
illustrates that time gaps between capable family leaders are often filled out by long serving
employees that are loyal to the family.
2.3 Suzuki Motor Corporation: Control through adult adoptions
Suzuki Motor offers an interesting case that challenges the conventional wisdom of family
control. Ever since it went public in in 1949, the founding family has never been listed among
the top ten shareholders. Suzuki’s largest shareholders have been banks and insurancecompanies that have held its shares for decades.
Suzuki Motor, a major global manufacturer of small cars, was established by Michio
Suzuki in 1909. Osamu Suzuki, the current patriarch of the Suzuki family, assumed the
16 Jason Clenfield and Yuki, Doubting Toyota Prince Defeats Crisis to Prove Self Wrong: Cars, Bloomberg,

November 21, 2013, accessed on January 18, 2018, http://www.bloomberg.com/news/2013-11-20/doubtingtoyota-prince-defeats-crisis-to-prove-self-wrong-cars.html.

11
leadership position in 1978. Osamu’s entry into the Suzuki family came about courtesy of his
marriage to the eldest daughter of Suzuki’s 2nd President, Shunzo Suzuki. Osamu adopted theSuzuki surname and began working at Suzuki in 1958 and rose through the ranks to senior
management positions. In 1978 when Chairman Shunzo passed away and Suzuki’s 3rd
President, Jitsujiro Suzuki, had health problems, Osamu was promoted as the President at theage of 48. Like Osamu, his two predecessors, Shunzo and Jitsujiro, were also the founder’sadopted sons-in-law who took on the Suzuki name after marriage.
Osamu followed his family tradition when planning for succession by grooming his
son-in-law (Hirotaka Ono) for President but unfortunately, Ono died of cancer in 2007 at the
young age of 52.17 In 2008, partly to cope with the financial crisis, Osamu, aged 78 at the time,
assumed the firm’s top positions as combined President/CEO/Chairman. In 2015, his 55years old eldest son, Toshihiro Suzuki, was appointed as the President, while Osamu
continued serving as chairman and has showed no signs of retiring even as he turned 88 years
old in 2018.
To sum, the three cases described above illustrate some common themes: First,
Japanese families often retain control over corporations founded by them even withoutmaterial ownership stakes. Second, the head of the firm often serves in the joint consolidated
positions of chairman of the board and the CEO or presidency. Third, control is sustained overtime through cross ownership and the use of specific governance mechanisms such as trusted
sarariman as CEOs during times when there are no suitable family members, or adoptee
candidates, to run the firm. These cases motivate our focus on separating ownership andcontrol in the following analysis and in understanding the role of financial constraints andfamily assets in determining the temporal variations in family ownership and control.

17 Reuters, “Suzuki Motor Exec, CEO's son-in-law Dies at 52,” December 13, 2007, accessed on January 29, 2018,https://www.reuters.com/article/suzuki-obit/suzuki-motor-exec-ceos-son-in-law-dies-at-52idUST4050820071213.

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3.

Data Sources and Descriptive Statistics

We start our dataset construction by including all companies that went public in the 19492000 period. We exclude a small number of the firms where financial or ownership data are
missing. The final sample covers almost the entire universe of public listed firms in post-war
Japan.
To identify family firms, we follow the procedure and the dataset used by Mehrotra etal (2013). We extend their sample as theirs only includes firms that went IPO prior to 1970.
Our extension covers IPOs through 2000. Ownership data are from the Development Bank ofJapan database for 1981 through 2000, as are our accounting data from 1962 through 2000.
The Toyo Keizai database provides information on stock prices and board composition from1989 through 2000. For prior years and missing data, Mehrotra et al (2013) constructed thedata by hand-collecting ownership, board structure and financial data from hardcopy annual
reports available at the Institute of Innovation Research of Hitotsubashi University.
Ownership data disclosed in annual reports include: (1) the stake of each of the top
ten shareholders, (2) the combined stake of all banks and other financial sector firms, and (3)the combined stake of all other firms. Board data include detailed information on eachdirector’s education (alma mater, major and graduation year), birth date, year initially hired,year appointed to the board, year made president (shacho) or Chairman (kaicho), and priorwork experience.
We identify each firm’s founder by consulting the following sources: (1)commemorative volumes (shashi) celebrating company anniversaries, (2) Toyokeizai
Shimposha (1995), (3) Nihon Keizai Shimbun (2004) and (4) company websites. To identify
relationships within the founding family, we use various Japanese language sources: (1)Tokiwa Shoin (1977) provides the family trees of 1002 business leaders, (2) a series of books
published by Zaikai Kenkyusho (1979, 1981, 1982, 1983, 1985) provides the names of family
members of the boards of listed firms, and (3) a set of thirty-eight Nihon Keizai Shimbun(2004) volumes provides the biographies of 243 prominent post-war business leaders.

13
Additional information on family relationships is obtained from the following sources:
Japanese equivalents of Who’s Who published by Jinjikoshinjo, the Nikkei Telecom 21
database of corporate news items published from 1975 onwards in the Nikkei group ofnewspapers (Nihon Keizai Shimbun, the Nikkei Business Daily, the Nikkei Financial Daily and
the Nikkei Marketing Journal), company archives, Koyano (2007) and website searches.
Using all this information, we annotate family trees with the names and business roles of all
members of each firm’s founding family. This information lets us identify each firm’s
founder(s) and ultimate owners, and ascertain each CEO/Chairman’s relationship, if any, tothe founding family by blood, marriage, or adoption.
We define family firms using both ownership and management information. On theownership side we will in most of our analyses define a family firm as one where theaggregated family ownership is at least 5%. Family ownership is measured as both directownership by family members and indirect ownership through family foundations andcompanies controlled by the family. Our ownership data contains the largest ten
shareholders for each firm in each year. It is therefore theoretically possible that weunderestimate family ownership in situation where there are family owners that are notamong the largest ten shareholders. In almost all cases, the number 10th largest shareholder
owns less than 2% of the shares, well below our threshold of 5%. Thus we believe that thepotential error in our categorization is small.
Figure 2 shows the listing of new firms on all four major Japanese exchanges (theTokyo, Nagoya, Fukuoka and Osaka stock exchanges) in the post-war period, spanning 19492000. We notice a spike in 1949 when the Tokyo Stock Exchange (TSE) and the Osaka Stock
Exchange (OSE) reopened after the war, and then again in 1961-62, when the second tier of
the TSE was opened. We also see a spate of new family firms listings in the late 1990s,
coinciding with signs of renewed, though ultimately brief, life in the Nikkei Index. We divide
the firms into those that were listed by individuals or families (family firms) and those thatwere listed by other entities such as corporations (non-family firms). In most of the following
analysis we will focus on the former group and examine how ownership and management
evolve over time.

14
Table 2 provides descriptive statistic for the firms in our sample. It reports the mean,
standard deviation, minimum and maximum for all 30,138 firm-year observations. We havegrouped the variables into the three categories that we focus on in the following analysis:
Finance Variables, Family Variables and Control Variables. Finance variables include thosethat are related to the need for capital and thus provide tests of the extent to which financecan explain the evolution of ownership and control. We find that average ROA is 4.75%,
similar to the value of 4.64% documented in Mehrotra et al (2013) and comparable to thefigure of 3.1% documented for a more recent period (1986-2000) in Delios and Beamish(2005) based on Japanese multinational firms. The mean Tobin’s Q ratio is 1.5, similar to thevalue documented in Mehrotra et al (2013) – the corresponding Q-ratio for the 1986-2000 is
1.30 in Delios and Beamish (2005). The mean volatility of industry sales is 20.7. The mean
firm size in natural log is 17.345 and equals ¥ 34 billion. The mean leverage (based on thelong-term debt to assets ratio) is 0.20. Equity issuance happens on average in 17.4% of thefirm years, corresponding to a frequency of approximately once every six years. The mean
foreign ownership is 1.02% of outstanding shares, lower than the more recent figure of
11.8% by Foreign Institutional Investors reported in Miyajima and Hoda (2015).
The family variables are our proxies for intangible family assets. To measure family
legacy we employ an indicator variable that captures if the firm name is related to the family
name, which occurs in roughly one-third of the sample (see Belenzon, Chatterji and Daley,2017). Our proxies for family resources are the presence of family members on the board of
the company, as well as the presence of family members with elite education on the board18.
A little more than 28% of firms have a family member on their board, while 24% of firms
have a member with Elite education on the board, indicating that most family members thatserve on the firm’s boards have Elite education.
The next variable in this set is stable ownership, defined as the percentage ofshareholdings by the top 10 shareholders who have held the firm’s shares for at least fiveconsecutive years. We submit that stable ownership indicates the presence of friendly block-18 We follow Mehrotra et al (2013) in defining Elite education as a degree from one of Top 5 national universities

in Japan.

15
holders. The average share of stable ownership is 24%, which is around 10% more than the
average family ownership. We note that stable ownership may also proxy for entrenchment,
and recognize that as such, its effect on firm value may be ambiguous.
Finally, we have a group of control variables that are hypothesized to influenceownership and control but do not identify clearly as Finance or Family Assets – these are left
as Control variables. The average CEO age is close to 60 years. On average CEOs have been in
their position for 12 years and 23% of them have an education from an elite Japanese
university. We find that the mean family ownership is 14%. When there are many elite nonfamily members on the board, we conjecture that there is an impending transition away fromthe family. The average number of elite non-family members on the board of directors is 0.8.

4. Evolution of family control and family ownership
In this section we categorize family firms based on ownership thresholds and management
control and describe the evolution of each over time. We then explore factors that affectfamilies’ attrition of ownership and loss of management control – these factors include bothFinance and Family variables as discussed above in section 3.
4.1

Categorising family firms according to ownership thresholds and management control

We begin the analysis by categorising publicly traded Japanese firms into four groups
according to the size of family ownership and the presence of the founding family in top
management. On the ownership side it is common to use particular ownership threholds todefine family firms. As discussed above, common cut-off levels in the literature are 5%, 10%
and 20% ownership.19 We go with the lowest cut-off, and repeat all our tests with higher
thresholds as robustness checks. 20 With respect to management we define family control
based on whether the CEO position (the President position in most Japanese firms in our

19 In Japan this corresponds exactly with voting rights share as well since dual voting shares are not permitted,

and vertical pyramidal ownership structures are rare.
20 Since the results do not change qualitatively we only present tables using the 5% threshold. Results using

higher ownership thresholds are available from the authors upon request.

16
sample) is occupied by a member of the founding family. Based on the above dual screens, wedefine the four types of firms as follows.
Type 1 firms are the classical closely-controlled family firms where the family’s
ownership stake is above the cut-off level and a founding family member serves as the CEO of
the firm. Type 2 firms are those where the family ownership is below the cut-off level, but afamily member nonetheless serves as the CEO. In section 2 we saw that this was indeed thecase for the families behind Toyota, Casio and Suzuki. Type 3 firms are those where thefamily’s ownership stake is above the cut-off level, but the CEO position is occupied by asarariman CEO.21 Type 4 categorizes ex-family firms, where the family ownership is below
the cut-off level and the family no longer holds the top management position. It is important
to note that Type 4 firms were family firms at the IPO date in our sample.
4.2

Evolution of family ownership and family control

Panel A in Figure 3 describes the distribution of firms across the four types in IPO time. At theend of the IPO year, more than 85% of the newly listed firms are categorized as Type 1 where
the family controls top management and has significant ownership. It takes almost 20 years
after the IPO to reduce Type 1 firms to less than 50% of all listed firms. It is remarkable thatthe share of Type 2 firms with family management and no significant ownership increases in
IPO time. At the IPO time Type 2 firms are rare, but 10 years after the IPO, Type 2 firms
account for more than 10% of all firms, and after 20 years they represent almost one out offive listed firms – this fraction is maintained for the remainder of the 50-year post-IPO period.
Type 3 firms (significant family ownership with non-family CEO) show the most stability
following IPO, varying between 10% and 15% of all firms over the 50 years following thefirm’s IPO. It takes more than 10 years for Type 4 firms (ex-family firms) to reach a level of
10% of all listings. Twenty-five after the IPO, almost one in four listed firms is classified as
Type 4 firms.

21 Sarariman, a Japanese term, connotes a company employee who works for salary – we use the term to denote

professional managers unrelated to the founding family.

17
As we argued earlier, when family firms are defined based on ownership alone, allType 2 firms risk being mis-categorised as non-family firms. Panel A showed that Type 2
represents a large group of firms even when we use an ownership threshold of 5%. The miscategorization is obviously even larger when a higher ownership cut-off is applied. We show
this in Panel B where we apply a 20% ownership cut-off. Not surprisingly, the share of Type
1 firms declines relatively faster vis-a-vis Panel A. After 10 years, Type 1 firms represent 33%
of all listings, almost half as big as their share under the 5% ownership threshold. After 25
years Type 1 firms represent only 1 in 10 of the sample, vs. 40% in Panel A. On the other hand,
as expected with the higher threshold, Type 2 firms are more common in all years following
the IPO. After 12 years the share of Type 2 firms among listed firms is close to 50%.
We have already noted that if ownership alone is used to identify family control, asignificant under-reporting bias against family firms results. An additional source of potential
bias in counting family control among listed firms comes from ignoring new listings and delistings from the exchange. To address this bias, we expand the sample to all listed firms,
including those that were not family firms at the time of the IPO. We call them never family
firms to distinguish them from Type 4 (ex-family) firms. We re-plot figure 3 in calendar timewith the new data, first using a 5% ownership cut-off level and present the plot in figure 4.
We find that, first, the share of never-family firms among listed firms declines overtime. In the 1950s, it was more than 70%, in the 60s and 70s it was more than 50% and in thelate 90s it fell to less than 40%. A significant jump in the fraction of family-controlled firms
occurs in the early 1960s, with the opening of the second tier of the Tokyo Stock Exchange
when the share of Type 1 firms almost doubles to 30% of all listed firms (and stays at thislevel through the end of 2000). The share of Type 2 firms has been stable around 10% overmost of the last 50 years with a slight decline in the late 90s. By comparison, the share offamily owned, but professionally managed, firms (Type 3 firms) has been increasing over timeand represents around 15% of all listed firms in the year 2000 – this marks the extent of the
Chandler transformation among Japanese listed firms. Finally, and not surprisingly, the shareof former family firms (Type 4 firms) has also increased over time as firms age and families
sell out.

18
In Figure 4 Panel B we repeat the exercise using a 20% ownership cut-off. Whereas
the share of firms that were never family firms is by definition unchanged, we see a few
interesting variations across the other types: The share of Type 1 firms drops to 20% in thelate 90s while the share of Type 2 firms is much larger – note that these are the firms most
likely to be mis-classified as non-family firms under the ownership threshold criterion. Not
surprisingly, there are also fewer Type 3 firms and more Type 4 firms. This exercise shows
the twin dangers of using higher ownership cut-offs as well as ignoring family management
when defining family firms. This mis-categorization is material. If a 20% ownership cut-off
level is used, more than 20% of all listed firms in the last fifty years are categorized as nonfamily firms even when a family member serves as the CEO. Counting Type 1, 2 and 3 firms asfamily firms, we find that approximately four out of ten listed firms in Japan qualify as family
firms. This number has been relative stable since the 1960s. We conclude that families control
a significant fraction of public traded Japanese firms, either through ownership, and/or via
top management.
4.3

Transition across family firm types
As we have seen in Figure 3, in the years after their IPO, a large share of family firms

either loosen their control over ownership, or their control over management. Whereas thefigure provides a general picture of transition, it is not a complete picture of the path towards
exit from control. To complement the figure, Table 3 provides the transition matrix of how
family firms move between different categories. We find considerable movement across thefour firm types in our dataset. We define such events as exits when they are associated witheither a loss of executive position by a family member with the incoming CEO being unrelated
to the founding family, or involve the family ownership declining to insignificant levels, orboth. For e.g., when a family relinquishes ownership, but retains control in an executive office,we have a transition going from Type 1 to Type 2. Retaining ownership but hiring aprofessional CEO results in a transition from Type 1 to Type 3 firm. Selling out completely
with no management role results in a transition to Type 4.
Table 3, Panel A describes firms originating as Type 1 firms, Panel B describes firms
originating as Type 2 firms, and Panel C describes firms originating as Type 3 firms. Panel A

19shows that the most common exit for Type 1 family firms is from management; this marks atransition where a family CEO is replaced with a sarariman CEO (or non-family CEO). Thesetransitions account for a little over six out of ten exits for Type 1 firms. More than three outof ten exits (36%) involve the family’s ownership shrinking below the 5% threshold while
retaining management (exit from Type 1 to Type 2 firms). Interestingly only 3% of exits fromType 1 firms are to Type 4 firms, underscoring the limitation of relying on a loss of ownershipand management as the defining feature of exits by family firms.
Panel B describes the exit path for Type 2 firms. Not surprisingly, 100% of exits are to
Type 4 firm, essentially noting that for family managed (but not owned) firms, exit involves
the loss of management but no gain of ownership. Similarly, panel C describes the transition
path for Type 3 firms. We notice that that there are two types of transitions here. First thereis the transition where firms replace the professional manager with a family member andthus go from Type 3 back to Type 1. These transitions suggest that families sometimes use
professional managers as placeholders before ready and capable heirs re-position
themselves in management roles. Second, and slightly more frequently, the family gives up
the ownership of the firm and moves to Type 4.

5. Determinants of the evolution of ownership and management
In this section we analyse factors that influence the evolution of family ownership andmanagement. The aim is to understand why some families end up with management control
without ownership (Type 2 firms in our classification); some families retain ownership andeither keep management control (Type 1 firms) or professionalize management (Type 3
firms); while others exit both on the ownership and the management side (Type 4 firms). The
existing literature has focused on financial needs and constraints as key determinants forownership dilution that would be relevant in transitions from Type 1 to Type 2, Type 1 to
Type 4, and Type 3 to Type 4 transitions that involve a loss of material ownership
We show that in addition to financial constraints, relation-specific family assets areequally important factors in explaining the evolution of family ownership and control. In the20following subsections we first analyse ownership dilution alone since the literature has
focused on this variable. We provide a cross-sectional analysis of the determinants ofownership dilution in IPO time, and repeat the exercise with a novel measure of ownership
dilution based on the concept of half-lives denoting the time for ownership to decay to half
its level. We then investigate the twin questions of why firms relinquish management tooutsiders (the Chandlerian professionalization of management), and how families retain
control over management despite having little share ownership. We end this section by
analysing determinants of family exits from both ownership and management.
5.1 Univariate differences across family firm types
Table 4 provides firm year mean statistic for the four types of firms. We group our variables
into three categories: Financial variables, family variables and control variables. We have30,138 firm years which include 14,697 Type 1 firm years, 4,606 Type 2 firm years, and 3,821
Type 3 firm years (the rest are Type 4 firm years). The table begins by providing the mean of
all variables for the various firm types and follows this by providing mean differences acrosspair types. For e.g., the column titled Type 3-4 (read as Type 3 minus 4) is the mean difference
for the variable between Type 3 and Type 4 firms.
We begin by comparing mean statistics for the financial variables. Looking at therelationship between family control and operating performance we find that family
ownership on average is correlated with higher accounting performance measured as
operating return over assets (ROA). ROA for Type 1 firms is the highest at 5.3%, vs. 3.4% forType 4 firms. Type 2 and Type 3 firms are in the middle with ROAs of 4.2% and 4.7%. The
pairwise differences across each category are statistically significant. However, valuations,based on Q-ratios, are not statistically distinguishable across the firm types. Likewise, there
is little variation among the four groups when we look at the volatility of industry sales. In
general, family owned firms (Type 1 and Type 3) are smaller than Type 2 and Type 4 firms.
That is only natural since family ownership dilution is correlated with asset growth. We also
notice that in firms where families retain both management as well as ownership, financial
leverage is lower vis-a-vis firms where the family has lower ownership and/or no executive
positions. Lower family ownership is correlated positively with firm age – Type 4 and Type 2

21
firms tend to be older than Type 1 and Type 3 firms. Foreign ownership tends to be low acrossall types of firms. Shares held by foreigners are the highest for Type 4 firms, but even there
mean ownership by foreigners is less than 2%. Comparisons with other studies are muddiedby the fact that we do not look at non-family firms in our study, which may attract
disproportionate investment from foreigners.
Next, we focus on variables we will use as proxies for family assets. By construction,
the share of family ownership is significantly higher for Type 1 and Type 3 firms than for theother two types. More interestingly, family ownership and involvement are higher in Legacy
firms that share their names with the founding family. Type 1 firms are more likely to be
Legacy firms compared to Type 2 and Type 4 firms, indicating a reluctance of legacy heirs todisengage from their firms. For the same reason, both Type 2 and Type 3 firms are more likely
to be Legacy firms compared to Type 4 firms. Type 2 and Type 3 firms are more likely to havea family member on their board vis-a-vis Type 4 firms; they are also more likely to be
graduates of Elite universities in Japan. These two results point to the unique resourcesfamilies bring to the board – when these are not in evidence, the family’s departure ishastened. It is worth noticing that Type 2 firms are more likely to have elite family memberson their boards than Type 1 and Type 3 firms. This is consistent with the idea that stronger
family assets empower families to control firms even when their ownership stakes are small.
Finally, we focus on the set of control variables. Type 1 firms have the youngest albeit
longest-serving CEOs, while CEOs of Type 4 firms have the shortest tenures and tend to be
the oldest. Type 2 and Type 3 firms are situated in the middle. We note that ownership
bestows executive roles at an early age and tends to be associated with long tenures when the
CEO is an heir of the founding family. Where the CEO is a sarariman, tenures are shorter, andsuch a position comes at a more advanced age. It is also clear that family CEOs (Type 1 and 2)
are less likely to have education from elite universities relative to non-family CEOs (Type 3
and 4).

22
5.2 Determinants of ownership dilution
We start by graphing mean and median family ownership following the exchange listing in
Figure 5. At the end of the listing year, family ownership averages about 35%. While directcomparison with other countries are muddied by measurement issues, we note that theownership of shares by family in the sample of sell-outs studied by Klasa (2007) is 36%, andownership by CEOs (officers and board members) in the year of the IPO is 16% (44%). By
year 5, mean ownership declines to 26.6%, and by year 10, it is 19.6%. Twenty years after
IPO, average ownership declines further to 12.4%, and after thirty years, it is 8.9%. Medianownership is significantly smaller in all years indicating that there is a group of firms thatkeep a relatively high family ownership for a longer time after IPO.
The model we use to study the determinants of post-IPO ownership decay is given inequation (1). 𝒐𝒊,𝒕 is the family ownership in firm i and at time t, x’s are explanatory variables
such as ROA, Q-ratio, Family legacy, Stable ownership, z’s are control variables such as firmage, CEO age, CEO tenure and CEO eliteness. a’s and b’s are coefficient estimates, c1’s are fixed
year effects, and e’s represent error terms. We cluster standard errors at the firm level, andinclude fixed year effects in all regression specifications.

𝑜𝑖,𝑡 = ∑𝑛 𝑎𝑛 𝑥𝑛,𝑖,𝑡 + ∑𝑚 𝑏𝑚 𝑧𝑚,𝑖,𝑡 + 𝑐1 𝛿𝑡 + 𝑒𝑖,𝑡

Eq. [1]In Table 5 Panel A we present the first results on ownership decay. In Column 1 wetest the Finance explanations for ownership decay. First, we expect more profitable firms toretain family ownership for a longer period, while firms that need external finance face fasterownership decay. We find that ROA and Tobin’s Q are both highly positively correlated withfamily ownership, confirming that families tend to maintain control over more profitablefirms. Firms in industries with higher volatility of sales have smaller family ownership stakes.
Letting industry volatility of sales be a measure of competition, this is consistent withcompetitive industries hastening the exit of family ownership. Larger firms and firms with23
higher levels of leverage have lower levels of family ownership. This is consistent with theidea that firms with higher leverage and greater past growth (resulting in current larger size)
have lower family ownership. Similarly, firms that have issued equity in the prior two years
are associated with faster ownership decay due to the dilutive effects of the equity offering.
Overall our results confirm the importance of Finance in explaining the dynamics ofownership in the post-IPO period, and are consistent with the narrative and results in Rajan
and Zingales (1996).
In all regressions we control for firm age, the age and tenure of the CEO, and the eliteness of the CEO, measured as an indicator variable if the CEO has a degree from an elite
university. In all Tables we find that firm age, CEO age and having elite CEOs are correlatedwith lower levels of family ownership while CEO tenure is positively correlated. The lattercan be explained by the fact that family CEOs in general have longer tenure than non-familyCEOs and that having a family CEO is correlated with larger family ownership.
Column 2 analyses the importance of family assets in explaining ownership decay.
First, we affirm the importance of family legacy – firms eponymous with the founding family
tend to have higher family ownership. Second, the presence of family members on the firm’sboard is associated with higher family ownership, as is the presence of family members fromElite Universities. By contrast, the presence of Elite non-family members on the firm’s board
is associated with a lower level of family ownership. Stable ownership, which we define asshares held by group firms that have not changed hands in the last five years, is associatedwith higher family ownership. All these results are strongly significant in statistical terms.
The split between finance and family variables in Column 1 and 2 makes it possible to
do a horse race between the two explanations. We do this by comparing the variation infamily ownership that each of the two models can explain as measured by the pseudo R2
statistic. It is interesting to note that the explanatory power of the family model in Column 2
is higher (Pseudo R2 = 34.1) than for the finance model (Pseudo R2 = 20.7).
Column 3 estimates the decay in ownership adding both financial and family variablesin the same model. This only has a marginal impact on the coefficients. For the financial

24
constraints we notice that the results are almost identical to when we run the financial model
without the family variable. For the family variables, we also notice that all variables are
significant in statistically terms and have the same sign as in Column 2.
Overall, we find support for both family as well finance variables in explaining thecross-sectional variation in family ownership. While the role of finance has been explicitly
noted in the literature, our results point to the hitherto overlooked importance of family
assets in determining the dynamic nature of family ownership.
In Panel B, we repeat the regressions using ownership half-lives as the dependent
variable. We define ownership half-life as the time in which family ownership declines to half
its value at that point in time (measured in post-IPO years).
Let ownership at any time t be Wt, with initial ownership = W0
Assuming a decaying ownership function, the half-life, 𝝉, at time t is calculated as follows:

𝝉= t1/2 = t.log(2)/log(W0/Wt)

Eq. [2]To test the variation in half-life across time we replace the actual ownership level withthe half-life measure defined above in Equation (1). Results are provided in Table 5 Panel B.
They are in general very similar to the results in Table 5 Part A. Column 1 shows that financial
constraints matter. First, ROA is associated with longer half-lives for ownership, indicatingthat a loss of profitability is an important driver of ownership dilution. However, Tobin’s Q is
not significantly related to ownership decay; neither is the volatility of the firm’s industry
sales. Second, both firm size and leverage are correlated with shorter half times, confirmingthat the need for finance (to support growth) is a key factor for ownership dilution. Third,
foreign ownership is negatively correlated with ownership half-lives, indicating that
foreigners tend to be associated with faster decay of family ownership. Equity issuance has
no impact on the half-life of ownership decay – note that this is a key Finance variable since

25
it implies that ownership dilution is hastened via sale of equity to outsiders. The half-life
results do not support such a role for Finance.
Column 2 presents a model based on proxies for family assets. Family legacy(measured as eponymous firms and families) is strongly positively correlated with longer
half-lives, affirming our conjecture that family legacy tends to prolong family control. Family
and Elite Family members on the board and business networks (measured by stableownership) are also positively correlated with longer half-lives. Finally having elite nonfamily members of the board is negatively correlated with half-lives. These results portraythe following picture – ownership decay is hastened by the presence of smart non-family
members on the firm’s board and retarded by the presence of smart family members on thefirm’s board and by the importance families place on legacy. All family assets variables are
statistically significant at conventional levels.
Column 3 presents the results of including both financial and family variables in thesame model. The results are similar to the partial analysis in Column 1 and 2. For the financial
variables we notice that the coefficients have very similar size and statistical significance. For
the family variables, we note that Elite Non-family members on the board loses significanceboth in economic and statistical terms. For the other variables we notice a marginal increasein the strength of the coefficients. In all three columns we notice that older firms, older CEOs
and CEO Eliteness increase the speed of ownership decay.
To sum, Table 5 shows that family ownership decay over time is related to bothfinancial needs and the strength of family assets. Relative to existing literature we havedocumented that intangible family assets are important factors in understanding how andwhen families exit their ownership stakes.
5.3 Determinants of professionalization
In Table 6, we analyse the determinants of families exiting from management of the firm
while retaining ownership – the so-called professionalization of management talked aboutby Chandler (1977). Strong family assets leverage the value of family management(Bennedsen et al 2014). Thus, the loss of family assets in business families should predict that26
families are more likely to professionalize the family firm. By contrast, in the transition fromType 1 to Type 3, ownership remains unchanged. Hence, we predict that family assets proxies
are more important than financial variables in understanding the transition from Type 1 to
Type 3.
This is to a large extent confirmed in Table 6, Model 1, with two exceptions. First
accounting performance is negatively correlated with professionalization. This is consistent
with the idea that a crisis is often the trigger for implementing professionalization. When
profits are strong, it is easier to postpone the decision to give up the private benefits
associated with running the firm. However, when deficits accumulate, the pressure to bringin professional managers increases. Second, we also note that more valuable firms arecorrelated with transition to professional management.
In Model 2 we again focus on family variables. First, we notice that strong family
ownership makes professionalization more likely. This is consistent with the idea that thefamilies retain sufficient power via ownership to delegate management decisions without thefear of losing control. We also note the significant influence of family members on the boardof the firm. Thus, when the family is able to control professional managers through theirboard presence, it is also easier to embark on a professionalization path. Finally, stableownership is negatively correlated with professionalization. This is consistent with the viewthat new owners and changes in the distribution of ownership may increase the pressure on
family to give up the management position, while stable ownership preserves the status quo.
With respect to the control variables we notice that both CEO age and CEO tenure(which are correlated) are positively correlated with professionalization. Thus, older CEOs
are more likely to retire, and this may be the timing for which the family decides to put a newnon family CEO.
In Model 3 we add both financial and family variables in the same model. The results
are similar but emphasize the importance of family variables for understanding theprofessionalization process. We notice that firm age is not statistically significant any more.
It appears that only ROA and firm value from the set of finance variables correlate with27
professionalization. On the other hand, we find that having elite non-family members on theboard increases the odds of replacing the family CEO with an outsider. Overall, the results
affirm the importance of family assets in addition to the role played by finance in determining
the odds of professionalization of the family firm.
5.4 Determinants of control without ownership
Perhaps the most puzzling finding in this study is the large fraction of firms where families
retain the top management job even when their ownership stake becomes insignificant. In
Table 7 we explore the determinants of such Type 1 to Type 2 transitions. We follow the same
analytical path as in Table 6 by presenting two partial analyses and one that combines bothfinancial and family variables. By definition, this transition is about loss of ownership. As wesaw in our three cases the dilution of ownership has much to do with the imperative offinancing growth. Thus, a priori, we expect the finance variables to be important for thistransition.
As Model 1 shows, several finance variables do matter. As in Table 5, we find a positive
correlation between firm size and the odds of transitioning from Type 1 to Type 2. This isconsistent with larger firms needing more capital for their investments. Leverage is also
positively correlated with ownership transition, underscoring a rising need for external
capital for firms with tighter balance sheets. Finally, equity issuance is also seen as hastening
the exit from Type 1 to Type 2 firms. Contrasting this with the insignificant coefficient on
Equity Issuance in Table 6, we conclude that equity issuance is related to the loss of family
ownership, but not to the loss of family managerial control.
Under the assumption that family resources create value through active management,
and since Type 1 to Type 2 transitions preserve family management, we do not expect them
to be directly relevant in these transitions. Nevertheless, family resources may be importantin allowing families to retain control without ownership in Type 2 firms, and hence may
indirectly be relevant in the likelihood of these transitions. We let the data tell the story.
Indeed, Model 2 in Table 7 shows that the only family variables that are significant arefamily ownership and stable ownership. Unsurprisingly, when family ownership is small it is28
more likely that a given reduction pushes the family under the 5% threshold, which triggers
the transition to Type 2. However, networks do matter. It is interesting to observe that when
the family has a strong network as measured by the stability of ownership, they are also lesslikely to dilute the ownership. Looking at the control variables, we notice that younger CEOs
are more likely to be asked to stay on as CEOs even as ownership declines into insignificance.
On the other hand, CEO tenure is positively correlated with the transition – for a given CEOage, tenure on the job increases the odds of being retained as the CEO. Puzzlingly, CEOs fromElite universities are less likely to be associated with these transitions. We would havethought that such CEOs are more likely to be retained as ownership levels became
insignificant. Perhaps more talented CEOs find opportunities elsewhere as their ownershipstake is reduced to zero. In Model 3 we add both financial and family variables in the same
Model. The results are robust. We notice that now firm age is negatively correlated withownership dilution and that elite family members on the board are marginally correlatedwith ownership dilution. Else the results are very similar to the two partial models.
5.5

Determinants of exit paths.
Table 8 explores the transfer to total exit (to Type 4) regardless of whether the firm isType 1, Type 2 or Type 3. Most of these exits originate in Type 2 and Type 3 firms, very few
firms are sold when the family controls both ownership and management, as we documented
in Table 3.
Model 1 focuses on financial variables. Consistent with the existing literature, we findthat profitable firms are less likely to exit. It may be that profitable firms are able to both raiseoutside capital for investments, as well as finance investments via retained earnings. Larger
firms are more likely to be sold. This is consistent with the notion that larger firms have moreinterested buyers and have capital needs that exceed that of families’ private wealth. We also
notice that firms with higher leverage are more likely to be sold. Leverage puts pressure on
the family to find new capital and one way to do that is through sale of equity. Foreign
ownership appears to expedite exits as well – we cannot distinguish if this is because of a
selection bias where foreign investors shun firms with family ownership, or if foreign owners
somehow actively advocate for an exit. All of these effects are both economically relevant and29statistically significant at a one percent level. Interestingly, the equity issuance dummy is not
significant. This is contrary to the extant literature that has argued that equity issuance isrelated to the dilution of ownership by founders (see for example Helwege, Pirinsky and Stulz,
2007, who show that both equity issuance as well as sales of shares by insiders explain the
decline in post-IPO founder ownership).
Model 2 explains exit using the set of variables that proxy for family assets. Not
surprisingly, we find that family ownership lowers the odds of an exit for a couple of reasons.
First, higher family ownership may represent a younger earlier stage of these firms when exit
is less likely, as in Klasa (2010). Second, to the extent insider stakes face dilution from equity
issuance, smaller stakes are more likely to risk falling below our 5% threshold following
equity issues than larger stakes.
Perhaps more interestingly, we find that our proxy for family legacy – eponymous
firms – is significantly associated with a lower likelihood of exit. This is consistent with theview that the presence and visibility of the family creates value in firms where family legacy
is an active part of the business history and the business branding Belenzon, Chatterji, andDaley (2017). Alternately, it could be also true that founders who name the firm after
themselves place a higher value on control.
We employ two measures to gauge the intensity of family resources associated withthe firm. The first variable is an indicator variable to check whether one or more family
members serve as board members. The second proxy is an indicator variable that measures
whether the family board appointee has a degree from an elite Japanese university – thisvariable has been used as a proxy for talent in Perez-Gonzales (2006) and Mehrotra et al(2013). We find that in general having family members on the board reduces the likelihoodof exit, and, furthermore, the interaction of board presence with elite education, is also
negative. This indicates that both monitoring and talent are important family resources thathave the effect of delaying exits. We believe that while monitoring considerations have beenaddressed in the literature, the idea that talent as a family resource plays a role in control isa novel one.

30
Finally, we investigate whether stable ownership retards the likelihood of exits. We
base this on the assertion that strong family networks engender stable blockholders that canpreserve the status quo for a longer time. The results in Table 8 do not support such an
assertion – in fact, we find that stable ownership is associated with a higher likelihood of exit.
We do not investigate further the reasons behind this – perhaps it is possible that stable
blockholders facilitate sale of equity by insiders or allow families to retain management
positions despite ownership loss.
In all regression specifications, we notice that succession concerns loom large – thepresence of older CEOs increases the odds of an exit. This has been noted in the literature(see Klasa, 2010) and indeed, succession is often seen as the Achilles’ heel of family firm
longevity. Similarly, CEO tenure is seen as inversely related to exits – this is not surprisingsince a longer tenure has the natural effect of postponing exits. The last of the control
variables is the educational attainment of the outgoing CEO. We find that CEOs with elite
university pedigrees seems to face higher odds of exits. This is perplexing since we were
expecting that smarter CEOs (those with elite degrees) would be associated with a lower
likelihood of exits. As noted above, perhaps elite CEOs find superior career options elsewhere
and are not beholden to the firms founded by their ancestors.
It is interesting to notice that when we compare the Finance and Family models, they
have very similar R-squares – this is noteworthy since the literature has largely focused on
Finance as a propeller of exits. Our results show that Family is equally important (indeed,
Model 2 has a marginally higher pseudo R2 than Model 1) in explaining exits. The literature’s
focus on Finance has the effect of missing out on a set of family factors that are statisticallysimilar in their ability to jointly explain the exit probabilities. In principle, omitting the family
variables could also bias the observed coefficients on the Finance variables. We include bothsets of variables in the third specification presented in Model 3.
Barring a few differences, the results are very similar to the partial analysis in Model
1 and 2. However, firm size is no longer significant in explaining exit likelihood. This may be
due to firm size and family ownership being correlated and omitting either variable has thepotential to introduce bias in the estimated coefficients. Similarly, we also notice that firm

31
age is now significant, such that older family firms are seen as less likely to exit, controlling
for the set of Finance and Family variables. This is interesting since it implies that Firm Age
per se is not a handicap for family control – rather, it may be other variables that are
correlated with Firm Age that are fundamentally more important in determining exits. Our
measure of family legacy is no longer significant at the 5% level, though the point estimate issimilar in magnitude to that in Model 1. Finally, we note that the impact of the control
variables remains unchanged.
In Table 8 Panel B we split up the starting points and look independently on thetransfer from Type 1 to Type 4, Type 2 to Type 4 and Type 3 to Type 4. The first model is lessinteresting since it is based on only 18 observations indicating that a direct exit of a familyowned and controlled company is rare in Japan. When families exit by giving up management,
we notice that family legacy, and family and elite family members’ presence on the board,significantly reduce the odds of exit. Similar observations can be noticed when Type 3 firms(professionalized firms) are sold.
Overall, the results in tables 5 through 8 provide new insights into why families exit
their corporation. First, across all panels, we find that both family and finance variables areimportant in explaining the partial exit probabilities (based on comparing partial R-squares
from model 1 and model 2 across the three tables). Second, we notice that financial variables
seem to be relatively more important in explaining ownership dilution (the transition fromType 1 to Type 2) whereas family variables are relatively more important in the decision toprofessionalize the family firm (the transition from Type 1 to Type 3). This is consistent withthe arguments put forward in Bennedsen and Fan (2014) who argue that family assets are
key in determining the optimal management structure of firms, whereas financial roadblocks
are key to understanding a firm’s ownership structure.

6.

Conclusion
Using a novel dataset for the evolution of ownership and control of publicly tradedfirms in Japan we show that intangible family assets are important factors in understanding

32
the persistence of family control. In fact, we find that families exercise control over corporate
assets even in the absence of material share ownership – aided in part by a nexus of friendly
and stable investors around them, and in part by what are best described as soft family assets
such as a family’s name and reputation. The bottom line is that family control in Japan is more
persistent than the very low equity ownership by founding families would indicate.
We also conclude that family and financial factors jointly determine the dilution offamily ownership and loss of management control. We find suggestive evidence that financial
variables are more important in explaining the dilution of ownership, whereas family assets
are relatively more important in explaining the decision to delegate the top management job
to outsiders.

33

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36

Figure 1
Family Ownership of Casio, Toyota Motor, Suzuki Motor (1960-2000)
This figure presents the founding family ownership of Casio, Toyota Motor and Suzuki Motor. The percentage of family
shareholdings includes the ownership by the members of the founding family as well as by group companies. Vertical axis
numbers are in percent.
70

60

60.22

Toyota

55.86

50

49.85
43.27

40

Suzuki
34.51
32.29
29.76

30

25.69

Casio

20

10

0

18.4
15.35

4.88

6…

6.97

12.44
11.43

7.17

8.24

8.06

7.37

5.66

4.35

2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
1969
1968
1967
1966
1965
1964
1963
1962
1961
1960

37

Figure 2
New listings on the Japanese Stock Exchanges (1949-2000)
This figure presents IPOs on all stock exchanges in Japan during the 1949-2000 period. 1949 marks the re-opening of theTokyo Stock Exchange after the war. 1961 marks the spurt of new listings when the second tier of the Tokyo Stock
Exchange was opened. Family firms are defined as those where the founding family either has at 5% ownership or serves
as the CEO. Non-family firms are the remaining ones.
450
400
Family350
300

Non-family

250
200
150
100
50
0
1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999

38

Figure 3
Panel A: Family’s ownership & management in IPO Time, 5% ownership definition.
Type 1 are firms where the founding family has at least 5% ownership and the top management position. Type 2 arefirms where the family has less than 5% ownership but a family member serves as the top management position. Type 3
are firms where the family has more than 5% of the shares but the top management position is not a family member.
Type 4 are ex-family firms, where the family ownership is no longer significant and the founding family does not hold the
top management position. IPO time is measured in years past the IPO year. The sample includes all publicly traded firms
in Japan covering the period of 1955-2000.

100%
90%
80%

Type 470%

Type 360%50%Type 240%30%Type 1

20%

10%
0%
0

2

4

6

8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50

Years following IPO

39

Panel B: Family’s ownership & management in IPO Time, 20% ownership definition.

100%
90%
80%

Type 470%
Type 360%50%Type 240%30%Type 1

20%
10%
0%
0

2

4

6

8

10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44

Years following IPO

40
Figure 4
Panel A: Family’s ownership & management in calendar years (1955-2000), 5% ownership definition.
Type 1 are firms where the founding family has at least 5% ownership and the top management position. Type 2 arefirms where the family has less than 5% ownership but a family member serves as the top management position. Type
3 are firms where the family has more than 5% of the shares but the top management position is not a family member.
Type 4 are ex-family firms, where the family ownership is less than 5% and the founding family does not hold the top
management position. These firms were family firms at the date of the IPO. Non-family are firms that were not family
firms when they did an IPO. The sample includes all publicly traded firms in Japan covering the period of 1955-2000.

100%
90%

Non-family

80%

70%

Type 460%50%Type 340%30%Type 220%

10%Type 10%

Calendar year

41
Panel B: Family’s ownership & management in calendar years (1955-2000), 20% ownership definition.

100%

90%

Non-family

80%
70%

Type 460%50%Type 340%Type 230%
20%Type 1

10%0%

Calendar year

42
Figure 5
Family Ownership from IPO (1949-2000)
Family ownership for each firm in a given year is calculated as the percentage of total shares outstanding owned directlyby the founding family as well as indirectly via companies that the family ultimately controls. The mean and medianownership level is calculated each year since the IPO time. The sample includes all publicly traded firms in Japan
covering the period of 1949-2000.
40.00
35.00

30.00
25.00
Mean
20.00

15.00

Median

10.00
5.00
0.00
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38

43
Table 1
Toyota Motor’s Top 10 Shareholders
This table presents the top 10 shareholders of Toyota Motors at a fiscal year ending on March 31.
Fiscal year Top 1

%

Top 2

%

Top 3

%

Top 4

%

Top 5

%

Top 6

%

Top 7

%

Top 8

%

Top 9

%

Top 10%1962

Toyo Trust 7.86

Mitsubishi
Toyota
3.82
4.48
Trust
Industries

MitsuiBank

3.04 Tokai Bank 2.94

Daiwa
Bank

2.86

NipponLife

1.79

Sumitomo
1.50
Trust

Sanwa
Bank

1.45

Kyowa
Bank

1.43

1970

Toyota4.48
Industries

Mitsui
Bank

Sanwa
Bank

4.02

Nippon
Life

3.48

LTCB

3.35

Daiwa
Bank

2.80 Toyo Trust 2.56

Kyowa
Bank

2.28

ToyotaTsusho2.16

1980

MitsuiBank

4.98 Tokai Bank 4.94

4.79

Toyota4.56
Industries

Nippon
Life

3.90

LTCB

3.47

ToyotaTsusho

2.61

Daiwa
Bank

2.56

Dai-ichiLife

Taisho2.46 Marine &
Fire

2.26

1990

Sanwa
Bank

4.96

MitsuiBank

4.96 Tokai Bank 4.96

Toyota4.63
Industries

Nippon
Life

3.75

LTCB

3.11

MitsuiMarine

2.46

Daiwa
Bank

2.29 Mitsui Life 2.23

Dai-ichi
Life

2.23

2000

Toyota5.34
Industries

Sanwa
Bank

4.75

4.33

NipponLife

Japan
Trustee 3.83
Srvcs Bank

ChiyodaBank

3.05

Mizuho2.96
Trust Bank

LTCB

2.73

2010

Japan
MasterToyota5.55
5.83
Trustee ####
Trust Bank
Industries
Srvs Bank

NipponLife

MitsuiTokio Mar.
2.31 & Nichido 2.24 Sumitomo 1.88
Insurance
Fire

Denso

1.70

2015

Japan
MasterToyota5.29
6.57
Trustee 9.99
Trust Bank
Industries
Srvs Bank

State
StreetBank and
Trust

Mitsui2.03 Sumitomo 1.93
Insurance

Capital
Group

1.75

4.46 Tokai Bank 4.40
Sanwa
Bank

MitsuiBank

4.32 Tokai Bank 3.92 Chuo Trust 3.87

3.78

State
StreetBank &
Trust

2.54

3.73

NipponLifeBank of3.39 New York
MellonBank ofTrust &
Custody 2.51 New York
MellonSrvcs Bank
2.51

Trust &
Custody 2.05
Srvcs Bank

Denso

44
Table 2
Descriptive Statistics
Summary statistics for the variables used in the remaining tables. All variables are describedin Appendix 1. ***, **, and * denote significance at the 1%, 5% and 10% levels.
Factors
Control factors

Family factors

Finance factors

Variables

Mean

S.D.

Min

Max

CEO age(1)59.577

8.572

26

95

CEO tenure(2)

11.958

10.577153

CEO eliteness

(3)

0.228

0.420

0

1

Family ownership(4)

14.63315.789095.79

Family legacy

(5)

0.319

0.466

0

1

Family on the board

(6)

0.284

0.451

0

1

ELITE family on the
board
Elite non-family on the
board
Stable ownership

(7)

0.240

0.427

0

1

(8)

0.804

0.397

0

1

(9)

23.68818.077

0

95.79

ROA

(10)

4.750

4.572

-21.983

32.654

Tobin Q

(11)

1.497

0.521

0.289

5.478

Volatility of industry sales (12)20.7101.413

14.33123.995

Firm size(13)

17.345

1.409

12.78223.226

Leverage(14)

19.96014.1240

91.963Equity issuance dummy

(15)

0.174

0.379

0

1

Firm age(16)

42.76615.5247107

Foreign ownership

(17)

1.026

4.687

0

89.8

Time value for Cox
regression(18)

12.770

9.419

1

46

45

Table 3
Succession Transition Matrix
Panel A, Panel B, and Panel C describe the transition from Type 1, Type 2, and Type 3 to othercategories, respectively. The statistics refer to the fraction of firms ending up in that Type.
All variables are defined in Appendix 1.
Panel A: Transition from Type 1
Family ownership

No family ownership

TYPE 1

TYPE 2Start stage

0.36

TYPE 3

TYPE 40.62

0.03

Family ownership

No family ownership

TYPE 1

TYPE 20Start stage

TYPE 3

TYPE 40

1

Family ownership

No family ownership

TYPE 1

TYPE 20.45

0TYPE 3

TYPE 4

Start stage

0.55

Family CEO

Non-family CEO
Panel B: Transition from Type 2

Family CEO

Non-family CEO
Panel C: Transition from Type 3

Family CEO

Non-family CEO

46
Table 4
Univariate Differences Across Firm Types
Type 1 are firms where the founding family has at least 5% ownership and retains the top management position. Type 2 arefirms where the family has less than 5% ownership but a family member serves in the top management position. Type 3 arefirms where the family has more than 5% of the shares but the top manager is not a family member. Type 4 firms are ex-family
firms, where the family ownership is less than 5% and the founding family does not hold the top management position. Allvariables are defined in Appendix 1. ***, **, and * denote significance at the 1%, 5%, and 10% levels.
Family firm classification

Type 1Type
2Type 3

Type 4

Type 1-2

Type 1-3

Type 1-4

Type 2-3

Type 2-4

Type 3-4

ROA

5.292

4.225

4.740

3.432

1.0663***0.5518***1.8595***-0.5145***0.7932***1.3077***

Tobin Q

1.490

1.493

1.575

1.454

-0.0059-0.0953***

0.0261**-0.0894***

0.0320***0.1214***Volatility of industry sales

20.68

20.59

21.04920.71

0.0920***-0.3681***-0.0179-0.4600***-0.1099***0.3501***

Firm size

16.96

17.84

17.57817.84-0.886***-0.6219***-0.8793***

0.2637***0.0064-0.2574***

Leverage

20.45

21.30

17.64719.66-0.857***2.7979***0.7901***3.6548***1.6470***-2.0078***

Equity issuance dummy

0.195

0.165

0.162

0.12

0.0308***0.0337***0.0754***0.00280.0446***

0.0418***Firm age

38.61

48.55

41.90850.03-9.941***-3.3005***-11.4244***

6.6413***-1.4825***-8.1239***

Foreign ownership

0.668

1.137

0.894

2.133

-0.469***-0.2262***-1.4648***0.2434*-0.9953***-1.2387***

Family ownership

21.26

0.00

26.4040.00

21.2555***-5.1483***

21.2555***-26.4038***

0.00

26.404***

Family legacy

0.349

0.288

0.354

0.238

0.0605***-0.0058

0.1103***-0.0663***0.0498***0.1161***

Family on the board

0.316

0.251

0.316

0.141

0.0646***-0.0001

0.1753***-0.0647***0.1107***0.1754***ELITE family on the board

0.262

0.295

0.254

0.106

-0.0336***0.008

0.1561***

0.0417***0.1898***0.1481***

Elite non-family on the
board
Stable ownership

0.738

0.865

0.825

0.907

-0.1267***-0.0866***-0.1692***

0.0401***-0.0425***-0.0826***

22.25

15.83

30.05931.84

6.4220***-7.8071***-9.5899***-14.2291***-16.011***-1.7828***

Contd. next page…

47
CEO age

57.95

59.34

61.11062.17-1.3920***-3.1636***-4.2248***-1.7715***-2.8328***-1.0613***

CEO tenure

16.57

14.03

5.009

4.569

2.5389***11.5611***12.0012***9.0222***9.4623***0.4401***CEO eliteness

0.145

0.219

0.287

0.387

-0.0742***-0.1417***-0.2419***-0.0675***-0.1677***-0.1002***

Number of observations

14,697

4,606

3,821

5,393

48
Table 5Determinants of Ownership Dilution
This table presents pooled OLS regression estimates of Family Shareholdings (Panel A) andFamily Half-life Ownership (Panel B) as dependent variables against family and financefactors. The regression includes fixed year and industry effects. All variables are as definedin Appendix 1. Standard errors are clustered by firms. t-statistics are reported inparentheses. ***, **, and * denote significance at the 1%, 5% and 10% levels.
Panel A: The dependent variable is the Percentage of Family Shareholdings
ROA
Tobin Q
Volatility of industry sales
Firm size

Finance factors

Leverage
Equity issuance dummy
Firm age
Foreign ownership

Model 1
0.2393***(9.12)
1.8326***(7.42)-0.4937**(2.57)-1.7946***(24.74)-0.0543***(7.50)-0.8419***(3.87)-0.2317***(33.67)-0.2282***(14.64)

Family legacy
Family on the board

Family factors

ELITE family on the board
Elite non-family on the board
Stable ownership
CEO age

Control factors

CEO tenure
CEO elitenessConstant
Number of observations
Pseudo R2-0.1653***(15.09)0.1557***(18.08)-1.0674***(5.47)
58.3212***(14.60)28303
0.2069Model 22.0228***(12.71)3.3226***(20.44)4.1872***(21.24)-3.7619***(19.69)0.3977***(65.47)-0.2853***(30.58)0.3017***(41.94)-3.9650***(18.42)18.8215***(16.31)28303
0.3414Model 30.1784***(8.14)
1.5496***(7.60)-0.4131**(2.49)-1.6165***(24.43)-0.0405***(6.64)-0.8259***(4.52)-0.2047***(34.10)-0.0590***(3.96)
2.7292***(17.75)3.0317***(19.33)
5.1170***(27.06)-2.0828***(11.21)0.3721***(63.60)-0.2132***(23.59)0.2280***(32.48)-3.3263***(16.00)49.9143***(14.53)28303
0.405949
Panel B: Dependent variable is Family Half-life Ownership

ROA
Tobin Q
Volatility of industry sales
Firm size
Finance factors

Leverage
Equity issuance dummy
Firm age
Foreign ownership

Model 1
0.0621***(4.65)-0.0692(0.60)
0.0541(0.61)-0.7296***(18.95)-0.0083**(2.39)
0.0698(0.62)-0.0142***(3.98)-0.0143**(2.51)

Family legacy
Family on the board
Family factors

ELITE family on the board
Elite non-family on the board
Stable ownership
CEO age

Control factors

CEO tenure
CEO elitenessConstant
Number of observations
Pseudo R2-0.0880***(15.48)0.1363***(27.89)-0.0048(0.05)
24.9892***(12.01)15396
0.4056

Model 20.2831**(2.97)
0.4798***(4.79)
0.7845***(6.53)-0.6337***(5.29)-0.0263***(11.38)-0.0879***(15.32)0.1306***(26.34)-0.4650***(4.52)
15.2289***(12.20)15396
0.3954Model 30.0638***(4.79)-0.1590(1.38)
0.0722(0.81)-0.7926***(20.33)-0.0071**(2.04)
0.0732(0.65)-0.0180***(5.02)-0.0277***(4.88)
0.3502***(3.67)
0.5702***(5.75)
1.0758***(9.03)-0.0593(0.50)-0.0294***(12.85)-0.0782***(13.66)
0.1240***(24.97)-0.3446***(3.40)
25.3672***(12.23)15396
0.4201

50
Table 6
Determinants of Non Family CEO: Transition from Type 1 to Type 3
The dependent variable in the logistic regressions is defined as an event when a Type 1 firmtransitions to become a Type 3 firm. All variables are defined in Appendix 1. t-statistics arereported in parentheses. ***, **, and * denote significance at the 1%, 5%, and 10% levels.

ROA
Tobin Q
Volatility of industry sales

Finance
Factors

Firm size
Leverage
Equity issuance dummy
Firm age
Foreign ownership

Model 1-0.0750***(4.30)
0.3039**(2.21)
0.0536(0.43)
0.0173(0.31)
0.0002(0.04)
0.1990(1.11)-0.0094*(1.90)
0.0065(0.34)

Family ownership
Family legacy

FamilyFactors

Family on the board
ELITE family on the board
Elite non-family on the board
Stable ownership

Control
Factors

CEO age
CEO tenure
CEO eliteness
Number of observations
Number of transitions
Pseudo R2

0.0614***(7.03)
0.0240***(4.19)
0.0784(0.43)
21110
299
0.1125Model 20.0116***(2.60)-0.0895(0.61)
0.5751***(4.36)-0.2154(1.25)
0.2761*(1.74)-0.0099**(2.19)
0.0577***(6.55)
0.0265***(4.67)
0.1529(0.78)
21110
299
0.1107

Model 3-0.0817***(4.62)
0.3047**(2.22)
0.0731(0.58)-0.0012(0.02)
0.0000(0.01)
0.2132(1.19)-0.0084(1.52)
0.0087(0.52)
0.0117**(2.32)-0.0788(0.54)
0.6101***(4.55)-0.2049(1.15)
0.2964*(1.81)-0.0099**(2.19)
0.0604***(6.70)
0.0253***(4.32)
0.1569(0.79)
21110
299
0.1205

51
Table 7
Determinants of Control without Ownership: Transition from Type 1 to Type 2
The dependent variable in the logistic regressions is defined as an event when a Type 1 firmtransforms to become a Type 2 firm. All variables are defined in Appendix 1. t-statistics arereported in parentheses. ***, **, and * denote significance at the 1%, 5%, and 10% levels.
Model 1
ROA
Tobin Q

Finance factors

Volatility of industry sales
Firm size
Leverage
Equity issuance dummy
Firm age
Foreign ownership

Family factors

Family legacy
Family on the board
ELITE family on the board
Elite non-family on the board
Stable ownership

Control factors

CEO tenure
CEO eliteness
Number of observations
Number of transitions
Pseudo R2

Model 3-0.1002***(7.78)-0.2146(1.42)-0.1281(0.80)
0.2033(1.15)
0.1823(0.96)-0.0402***(4.80)-0.0290**(3.13)
0.0268***(3.84)-0.4639**(2.36)
19626
233
0.1414-0.0091(0.44)
0.1364(0.90)
0.2796(1.46)-0.0339(0.49)
0.0220***(3.82)
0.5206***(3.31)-0.0134**(2.34)
0.0007(0.03)-0.1109***(7.72)-0.0782(0.50)-0.1635(1.01)
0.3007*(1.65)
0.1944(1.00)-0.0398***(4.73)-0.0245***(2.61)
0.0208***(2.98)-0.4517**(2.26)
19626
233
0.1566-0.0239(1.33)
0.0603(0.38)
0.3332(1.79)
0.1544***(2.65)
0.0207***(3.70)
0.5114***(3.31)
0.0025(0.52)
0.0253(1.32)

Family ownership

CEO age

Model 2-0.0174**(2.08)
0.0154**(2.49)-0.2406(1.28)
19626
233
0.0574

52
Table 8Determinants of Exit: Transition to Type 4
The dependent variable in the logistic regressions is defined as an event when a Type 1, 2, and 3 firmtransforms to become a Type 4 firm. All variables are defined in Appendix 1. t-statistics are reported
in parentheses. ***, **, and * denote significance at the 1%, 5%, and 10% levels.
Panel A: Determinants of transformation of family firms (Type 1, 2, and 3) to Type 4
Model 1
ROA
Tobin Q
Volatility of industry sales
Finance factors
Firm size
Leverage
Equity issuance dummy
Firm age
Foreign ownership-0.0748***(5.02)
0.0060(4.15)
0.0730(0.04)(0.47)-0.0057-0.0518(0.05)(0.44)

0.1239***0.0109(2.68)(0.21)

0.0115***0.0094**(2.75)(2.09)-0.1969-0.2001(1.15)(1.15)-0.0032-0.0162***(0.74)(3.38)

0.0400***0.0319**(3.10)(2.32)-0.0804***-0.0828***(10.10)(9.59)-0.2712**-0.2275*(2.14)(1.69)-0.4622***-0.4166***(3.43)(3.06)-0.8904***-0.8927***(5.03)(4.88)

0.14810.1705(0.91)(1.02)

0.0235***0.0239***(5.97)(6.12)

0.0561***(8.47)-0.0251***(4.62)
0.2800**(2.14)

0.0525***(7.51)-0.0235***(3.86)
0.7412***(4.60)

0.0560***(8.03)-0.0250***(4.08)
0.7812***(4.72)

22622
369
0.075822622
369
0.134322622
369
0.1500

Family legacy
Family on the board
Family factors
ELITE family on the board
Elite non-family on the board
Stable ownership
CEO age
CEO tenure
CEO eliteness
Number of observations
Number of transitions
Pseudo R2

Model 3-0.0873***

Family ownership

Control factors

Model 2

53
Panel B: Determinant of transformation for each type of family firms to Type 4 Firms

ROA
Tobin Q
Volatility of industry sales
Financefactors

Firm size
Leverage
Equity issuance dummy
Firm age
Foreign ownership
Family ownership
Family legacy
Family on the board

Family factors
ELITE family on the board
Elite non-family on the
board
Stable ownership
Control factors

CEO age
CEO tenure
CEO eliteness
Number of transitions
Pseudo R2Type 1 to 4

Type 2 to 4

Model 1-0.2015**(3.20)
0.8060(1.71)-0.9772**(2.19)-0.2019

Model 2-0.1267***(5.83)-0.2120(0.85)-0.1186(0.70)
0.3276***(0.70)
0.0199(0.98)-0.4256(0.58)-0.0394(0.85)-0.0146(0.43)
0.0092(0.45)
0.1216(0.18)-0.7092(0.86)-2.8273**(2.12)
0.5052(4.89)
0.0078(1.32)-0.3534(1.43)
0.0166***(3.26)
0.0449***(3.43)-0.3769**(2.10)-0.3561**(1.99)-0.4631***(2.62)
0.3021(0.65)-0.0418***(2.66)-0.0091(0.18)
0.0961***(2.62)
1.7525(1.57)(1.25)
0.0006(0.11)
0.0527***(5.14)
0.0155***(2.62)
0.4059**(2.30)

18
0.2457204
0.1176

54
Appendix 1
Variable Definitions
Variable

Variable Definition

Ownership & control variables
Family shareholdings

Fraction of total shares controlled by the founding family

Half-life Ownership

Family half-life ownership

Type 1 firms

Firms where the founding family retains both significant ownership (atleast 5% of the shares) and top management position as the CEO.
Firm where the founding family's ownership is insignificant but one ofits members is the CEO
Firm where founding family retains significant ownership but none ofits members is the CEO
Firm where founding family neither retains significant ownership nor
as the CEO

Type 2 firms
Type 3 firms
Type 4 firms
Family factor variables
Family legacy

Dummy variable set to 1 when the founding family name and firmname are the same; set to 0 otherwise
ELITE family on the
Dummy variable set to 1 when there is at least one ELITE family on theboard
board; set to 0 otherwise
ELITE non family on
Dummy variable set to 1 when there is at least one ELITE non-family on
the boardthe board; set to 0 otherwise
Elite Education
Dummy variable set to 1 if an executive has a bachelor degree from a
top national university, defined as former Imperial universities (Tokyo,
Kyoto, Osaka, Nagoya, Kyushu, and Hokkaido University) as well as
Kobe and Hitotsubashi University; set equal to 0 otherwise
Stable ownership
The percentage of shareholdings by the shareholders who were listed
in the top 10 shareholders for at least 5 consecutive years
Financial factor variables
ROA

Return on Assets defined as operating income scaled by total assets

Tobin Q
Volatility of industry
sales
Firm size

The market value of equity plus the book value of debt scaled by total
assetsStandard deviation of sales of the industry where the firm operates in
the past 5 years. The industry is measured at the 2-digit SIC code.
The natural log of total assets

Leverage

Total outstanding debt scaled by total assets

Equity issuancedummy
Firm age

Dummy variable set equal to 1 if firms experience the change of shareoutstanding from previous year more than 10%; set 0 otherwise
The number of years since incorporation

Foreign ownership

Fraction of shares held by foreign investors who are listed in the top
ten shareholders

55
Variable

Variable Definition

Control variables
CEO ageAge of the CEO

CEO tenure

Number of years as the CEO

ELITE CEODummy variable indicating whether the CEO has a bachelor degreefrom an elite university