|Author Name||KODAMA Naomi (Research Associate, RIETI) / MURAKAMI Yoshiaki (Osaka University of Commerce) / TANAKA Mari (Hitotsubashi University)|
|Creation Date/NO.||March 2021 21-E-013|
|Research Project||East Asian Industrial Productivity|
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The dynasty model, which assumes the presence of intergenerational altruism, implies that business owners will have more incentive to improve the firm performance if they expect their children to take over their firms. This study empirically examines how top managers' expectations about future family succession affect the performance of small businesses. Utilizing the sex of the top manager's first-born child as an instrumental variable for the manager's expectations about business succession by his child, we find that the existence of a potential family successor has a positive effect on profit. We also find that the presence of a potential family successor induces performance-enhancing actions and behaviors on the part of managers, such as improving operational efficiency, selecting better suppliers, and investing in information technology.