*2.1. Family Ownership and Firm Performance*

Agency theory can be put into place to discuss the performance difference between family and non-family firms. Agency theory states that executives do not have an interest in the firm's long-term performance (Jensen and Meckling 1976; Dalton et al. 1998), and they tend to make a decision based on their preferences, looking for short-term gain while ignoring shareholders' interests (Kallmuenzer 2015). Thus, from the agency theory perspective, family firms tend to perform better than non-family firms because the involvement of family members in both ownership and management can minimize this particular conflict of interest between managers and owners. Moreover, family firms are likely to have longer investment horizons, resulting in higher investment efficiency (Muttakin et al. 2014), as they want to preserve firm value for successive generations (Achleitner et al. 2014; Hasso and Duncan 2013). Moreover, empirical works by Razzaque et al. (2020) and Muttakin et al. (2014) reveal that family ownership has a positive impact on the performance of Bangladeshi manufacturing firms. Herrera-Echeverri et al. (2016) concluded that the family's involvement in the ownership and management often led to a more stable directorship for Columbian family firms. Blanco-Mazagatos et al. (2018) reported that family ownership has a positive influence on the performance of Spanish secondand later-generation firms. The more robust performance of family firms is also reported for companies in the S&P 500 (Anderson and Reeb 2003).

In the Japanese context, Chen et al. (2005) found evidence that supports the positive effect of family ownership on firm performance. Saito (2008) concluded that family control has a link to higher Tobin's Q. Similarly, Chen and Yu (2017) contend that Japanese and Taiwanese firms run by founders are traded at a higher value in the stock market.

Notably, there could be a Type II agency problem (principal–principal conflict) in family firms because the interest of family members may not necessarily be in line with the interest of minority shareholders (Muttakin et al. 2014). Besides, family firms usually hire executives from close relatives ignoring outside talents, resulting in suboptimal financial performance (Anderson and Reeb 2003). Accordingly, some empirical studies found a negative link between family ownership and firm performance (Yoshikawa and Rasheed 2010, for Japan).

Nonetheless, we argue that founders or family members who own and control the firms have stronger motivation to create wealth for successors. Thus, they tend to adopt long-run views in their investment horizons, which discourage them from taking higher risks, leading to generate stable returns for shareholders. Furthermore, higher family ownership reduces agency costs by reducing managerial myopia, moral hazards, and the agency problem. On this basis, we formulate Hypothesis 1.

#### **Hypothesis 1 (H1).** *Family ownership encourages the performance of family firms.*

## *2.2. Institutional Ownership and Firm Performance*

Institutional ownership is considered to be a useful tool to reduce the Type II agency problem, where family firms may expropriate profits at the expense of minority shareholders. Dau et al. (2018) report that institutional ownership improves the ROA of family firms in India. A study on 134 listed firms in Kuwait reveals that institutional investors encourage firm performance, indexed by ROA and Tobin's Q (Alfaraid et al. 2012). By contrast, Ahmad et al. (2019) found a significant negative relationship between institutional investors and ROA for non-financial firms in Pakistan. Charfeddine and Elmarzougui (2011) traced that institutional ownership has a significant negative impact on Tobin's Q for French firms. However, Alnajjar (2015) found no substantial effect of institutional ownership on both ROA and Return on Equity (ROE) for firms in Jordan. Regarding the Japanese firms, Mizuno and Shimizu (2015) found that firms with a higher level of institutional ownership tended to perform better than firms having less or no institutional ownership. Moreover, Yasuhiro et al. (2016) and

Arikawa et al. (2017) found a significant positive association between institutional ownership and Tobin's Q. However, they did not see any relationship between institutional ownership and ROA.

We argue that institutional investors can mitigate much of the agency problem associated with family firms as they hold a significant equity stake in the firm (Charfeddine and Elmarzougui 2011). Institutional investors are seen to be more powerful than non-institutional investors in exercising voting rights and selling shares when management actions are not aligned with shareholders' interests (Arikawa et al. 2017). Furthermore, institutional shareholders can protect the interest of minority shareholders and reduce the Type II agency problem by monitoring the firm's management. Therefore, following previous empirical findings and agency theory, we take the following hypothesis.
