Do Family Firms Outperform Non-family Firms in Japan? Further Evidence Using Foreign Ownership as a Moderator

Using a sample of 1384 manufacturing firms, comprising 546 family and 838 non-family firms listed on the Tokyo, Osaka, and Nagoya Stock Exchanges, we examine the performance difference between family and non-family firms in Japan. In addition, we check whether foreign ownership moderates the performance of family firms. We retrieve necessary data from Bloomberg and Osiris databases covering the period 2014-2018. We apply the pooled OLS regression model with two-way clustering and obtain consistent estimates that family firms outperform non-family firms in Japan in terms of both accounting and market-based measures of financial performance, such as ROA and Tobin’s Q. We also find that foreign shareholders do not play any significant role in improving the profitability of Japanese manufacturing firms. However, they appear to be critical for enhancing the performance of family firms, suggesting that foreign shareholders can mitigate much of the principal-principal conflicts of family firms by improving the monitoring functions.