Corporate governance and family succession: New evidence from Taiwan

Abstract

Succession in family firms has historically been associated with risk. However, improvements in laws and regulations along with the consequent improvements in corporate governance can greatly mitigate the potentially negative impacts on succession performance. This study utilizes a comprehensive data set of 280 cases of succession from Taiwan between the years 1997 and 2012, a period which coincides with the introduction of a big bang of new domestic laws and regulations. The results indicate that improvements in the regulatory environment along with the consequent strengthening of corporate governance reduces the probability of family succession while at the same time increases firm performance during the succession period. In many cases the impact of improved corporate governance outweighs the influence of improved laws and regulations. The implications of these findings underscore the importance of the government's role in establishing robust internal and external mechanisms to enhance corporate governance, so that in significant events such as firm succession, the attendant risks are reduced.