Family Control and Corporate Innovation in Stakeholder-Oriented Corporate Governance

Abstract

This study investigates the effects of family control on corporate innovation activity in publicly traded firms in Japan under stakeholder-oriented corporate governance. In a sample of 14,991 firm-year observations in publicly traded firms in Japan during the period 2007 to 2016, we tested whether family owners or board members are enhancing research and development investments. While theoretical perspectives of principal–principal conflicts generally assume a negative relationship between family control and research and development intensity, we find a positive relationship, which supports the stewardship theory perspective. Additionally, we find that main bank ownership positively moderates the relationship between family control and research and development, suggesting that the main bank could affect the decision-making of family board members in the long-term. This result is supported by the close relationships between the main bank and client firms. Furthermore, our study reveals that the shareholder orientation of foreign shareholders suppresses family board members’ long-term orientation. We conclude that the exploitation presumed by principal–principal conflict perspectives has not been thoroughly investigated in Japan’s stakeholder-oriented corporate governance system.

When stakeholder orientations matter: Modelling employee orientation, shareholder orientation and supply chain orientation as necessary and sufficient conditions for firm performance

“…The study also found a significant relationship between employee orientation and supply chain orientation, which supports the findings of reference [ 11 , 27 ]. Shareholder orientation also showed a significant effect on supply chain orientation, which aligns with the findings of reference [ 5 , 6 , 58 ].…”

“…Hence, a strong stakeholder orientation reduces the trade-offs that a limited pursuit of shareholder orientation imposes on firm innovativeness [ 6 ]. Moreover, shareholder orientation improves organisational performance because shareholders support the firm's activities when those actions align with their expectations [ 57 , 58 ].…”

“…The literature on the nexus between employee, shareholder and supply chain orientations on firm performance proffers a symmetric relationship between these orientations and firm performance. Specifically, prior researchers [ 5 , 6 , 53 , 58 ] used sufficiency logic to opine that employee orientation reference [ 8 , 26 , 27 ], shareholder orientation [ 53 ], and supply chain orientation [ 5 , 6 , 58 ] are sufficient for firm performance. However, identifying the orientation(s) that is necessary for firm performance is equally imperative.…”

Conflicts Between Parent Company and Non-Controlling Shareholders in Stakeholder-Oriented Corporate Governance: Evidence From Japan

“…Stakeholder-oriented corporate governance, however, has the potential to address PP conflicts through monitoring by a network of stakeholders, including shareholders, creditors, employees, and government (Young et al, 2008). In particular, because Japanese companies develop strong inter-company networks in terms of financial, personal, and business relationships, managers of Japanese companies seek to achieve goals that are beneficial to all stakeholders, including non-controlling shareholders (Desender et al, 2016;Lincoln & Gerlach, 2004;Sakawa & Watanabel, 2021;Yoshimori, 1995). In fact, Sakawa and Watanabel (2018) focused on the listed subsidiaries in Japan, revealing that the sales growth rate is greater in listed subsidiaries with strong parent company control; this finding suggested that PP conflicts are less likely to surface in Japan.…”

The Board Structure and Performance in IPO Firms: Evidence from Stakeholder-Oriented Corporate Governance

“…Among developed countries, Japanese corporate governance is stakeholder-oriented [8,9]. In fact, corporate innovations progress in family firms with stakeholder orientation [10]. Sustainable corporate performance and growth are also realized in effective monitoring mechanisms under stakeholder-oriented corporate governance in Japan [11].…”