**1. Introduction**

In recent times, the performance difference between family and non-family firms has received a new impetus to study because many studies claim that family firms outperform the non-family firms (Anderson and Reeb 2003; Sharma 2004; Allouche et al. 2008; Saito 2008; Chu 2011; Hansen and Block 2020; Srivastava and Bhatia 2020), while some others do not document the existence of such a relationship (Filatotchev et al. 2005; McConaughy and Phillips 1999; Miller et al. 2007; Yoshikawa and Rasheed 2010). Prior studies also note that the performance difference between family and non-family firms arises due to the governance system and corporate cultures across countries (Allouche et al. 2008; Srivastava and Bhatia 2020).

Given the above inconclusive results, we study and compare the financial performance of family and non-family firms in Japan from the governance perspective to add value. We consider Japan as a case for two reasons. First, family firms constitute over 40% of the listed firms in Japan (Saito 2008), implying the importance of such firms on stock market development and economic growth. However, not many researchers have deep-dived to investigate the factors contributing to the performance difference between family and non-family firms in Japan. Furthermore, the limited empirical works on the performance of family firms in Japan offer mixed results. For example, Allouche et al. (2008) and Saito (2008) revealed that family firms perform better than non-family firms in Japan. Dazai et al. (2016) claimed that Japanese family firms outperform their counterparts, particularly after the economic bubble in 1991. However, Morikawa (2013) discovered that the annual productivity growth rate (one of the indicators of a firm's performance) of non-family firms in Japan was about 2% higher than that of family firms. Saito (2008) noted that the performance of founder-run firms was worse than non-family firms, but the performance of family firms owned by the founder's successors was better than the non-family firms. Moreover, Yoshikawa and Rasheed (2010) did not trace a significant relationship between family ownership and return on assets (ROA) in Japanese Over-The-Counter ("OTC") market listed firms in the manufacturing industry. Since most of the studies on family firms in Japan were conducted a fairly long time before, updated evidence on the performance difference between Japanese family and non-family firms is instrumental for policy implications.

Secondly, the Japanese governance structure is found to be somewhat different from that of US-style governance. The distinct Japanese governance system, such as the Japanese integrated monitoring system practiced by main banks, life-time employment system, and cross-shareholdings which contributed to the post-World War II economic growth rates of Japan, were substantially changed after the "big bang financial and accounting reform in 1997" in favor of the US-style governance. Even though the impact of the reform program helped the increase of independent directors, encouraged foreign shareholding, and reduced shareholding by main banks, Japanese firms are still found to be characterized by the board of directors promoted from within the firms (Arikawa et al. 2017), relatively less numbers of independent directors (two or more as per Corporate Governance Code, 2015), insider CEOs, and a higher percentage of family ownership. Thus, it is essential to know whether the current financial setup impacts the performance of family firms in Japan. Clearly, do the governance mainsprings such as board structure and ownership patterns impact on the performance difference between Japanese family and non-family firms?

We explain the above question by studying all the manufacturing firms listed in Tokyo, Nagoya, and Osaka stock markets covering the period 2014–2018. We consider manufacturing firms because this sector accounts for nearly half of the total number of corporations existing in Japan while contributing approximately 20% of Japan's GDP. The Japanese manufacturing industry is still very sizeable and significantly crucial to the Japanese economy. Furthermore, we exclude the financial and service sectors because they have a different asset structure from the manufacturing firms.

Our results show that family firms outperform the non-family counterparts on both accounting and market-based measures of firm performance, such as ROA and Tobin's Q, when univariate analysis is invoked. On multivariate analysis, family ownership reduces firm performance, indexed by ROA, but promotes the same with Tobin's Q. Among the governance elements, we find that institutional shareholding is a significant and positive factor for boosting the performance of both family and non-family firms. Moreover, board size inspires the performance of non-family firms, while such influence is not observed for family firms. In terms of ROA, foreign ownership stimulates the performance of both family and non-family firms. Furthermore, government ownership positively influences the performance of family firms, while board independence significantly negates the same. Besides, we find that the performance of family firms run by the founder's descendants are superior to that of family firms run by the founder.

The rest of the paper is structured as follows: Section 2 develops hypotheses, and Section 3 presents the research methods. Section 4 discusses regression results, while Section 5 concludes the paper.
