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Dynastic Control without Ownership: Evidence from Post-war Japan

Journal: Journal of Financial Economics

Date: 20211101

Author: Bennedsen, Morten; Mehrotra, Vikas; Shim, Jungwook; Wiwattanakantang, Yupana

Abstract:
Dynastic-controlled firms are led by founding-family CEOs while the family owns an insignificant share of equity (defined as less than 5%). They represent 7.4% of listed firms in post-war Japan, include well-known firms such as Casio, Suzuki, and Toyota, and are often grouped with widely held firms in the literature. These firms differ in key performance measures from both traditional family firms and non-family firms, and evolve from the former as equity-financed growth dilutes family ownership over time. In turn, the transition from dynastic control to non-family status is driven by a diminution of family legacy and talent.

Link: Google Scholar

Key Findings

Prevalence of Dynastic Control

Dynastic-controlled firms represent 7.4% of all listed firms in post-war Japan, where founding families maintain management control despite owning less than 5% equity.

Performance Differences

Dynastic-controlled firms show distinct performance patterns - they underperform traditional family firms but outperform ex-family firms in accounting performance.

Evolution Patterns

Traditional family firms evolve into dynastic-controlled firms through equity-financed growth, while transitions to ex-family status are driven by diminishing family legacy and talent.

Dynastic Control Over Time

  • Shows evolution of dynastic-controlled firms from 1955-2000
  • Peak of ~10% of listed firms in late 1980s using 5% threshold
  • Higher prevalence (~22%) when using 20% ownership threshold

Performance Comparison

  • Traditional family firms show highest ROA at 5.29%
  • Dynastic-controlled firms achieve 4.23% ROA
  • Ex-family firms show lowest performance at 3.45% ROA

Transition Patterns

  • 63% of dynastic-controlled firms originate from traditional family firms
  • 22% transition from professionally managed family firms
  • 15% are dynastic-controlled from IPO

Contribution and Implications

  • Challenges the Berle and Means thesis that growth-induced ownership dilution leads to professional management takeover
  • Demonstrates that families can maintain effective control even with minimal ownership
  • Highlights the importance of family legacy, networks, and talent in preserving control
  • Provides new insights into the evolution and persistence of family firms

Data Sources

  • Timeline Chart: Based on Figure 2 showing the share of dynastic-controlled firms over time
  • Performance Chart: Constructed using ROA data from Table 1's univariate analysis
  • Transition Chart: Created using transition statistics from Table 2, Panel A