Business Succession and the Performance of Post-succession SMEs

Small- and medium-size enterprises (SMEs) played an important role in the postwar economic development of Japan, a process in which the country rebuilt its war-devastated economy and achieved high-growth economic development to become one of the leading economies in the world. Today, however, these companies are facing a major challenge.

The founders of SMEs who launched their businesses during the postwar and high-growth periods have grown old and the time has come for them to hand over their companies to the younger generation.

In anticipation of a rise in the number of such generational shifts in corporate leadership, this paper, using a set of original data, examines (1) what type of leader should assume control if the company is to maintain favorable business performance; and (2) the type of companies in which family and non-family successions tend to take place.

The analysis found: (1) the impact of the basic attributes of entrepreneurs (i.e., the age and educational background of the top manager of a company) on business performance differs markedly for post-succession companies and those under the founding leadership; and (2) the impact of such basic attributes also differs, even among post-succession companies, depending on whether or not the successor is a relative of the founder.

These results indicate that business succession, often referred to as dai-ni sogyo (second founding of a business), is subject to a completely different mechanism from that of its initial formation. At the same time, they also suggest that a clear distinction is necessary between family successions and non-family successions in discussing business succession.