The impact of product market competition and internal corporate governance on family succession

The paper examines the influence of product market competition and internal corporate governance, and their interaction on family succession. Our data comprises 382 succession events in Taiwanese listed family firms between 1997 and 2016. We find that firms operating in environments of intense product market competition are more likely to select a non-family member as the successor (i.e. non-family succession), as non-family successors are found to improve post-succession firm performance. Our results also indicate that there is a stronger likelihood that firms with controlling families who have a higher level of ownership and higher participation in management will implement family succession; however, this positive association is mitigated in a competitive environment. In contrast, a higher level of related party transactions (RPTs) is associated with more non-family succession, especially in a competitive environment. Moreover, firms with higher RPTs, higher growth opportunities, or in competitive environments are more likely to issue equity after non-family successions, which is consistent with outside successors improve shareholder trust in the firm. This study also documents that product market competition is a new external determinant of family firms' succession decision and links its effect to internal corporate governance.