Japan's elderly small business managers: Performance and succession

We investigate the effects of succession from an elderly to a nonelderly small business manager using firm-level data for Japan. The number of elderly small business managers has increased in Japan with the aging of the population; therefore, succession to younger managers has become an important policy issue. We make use of data for 2001–2015 for 188,021 small businesses, of which 77,773 at some point have a manager aged 60 or older and 8711 of these transition to a manager of under age 60. First, we investigate the relationship between firm performance and manager age. Performance is found to be lower for firms with elderly managers. Second, we estimate the determinants of succession in small businesses with elderly managers, showing that larger, less leveraged, more cash-rich, and profitable firms are more likely to transition to younger managers. Our results imply that more poorly performing firms are less likely to replace elderly managers, suggesting that such firms are not selected by young managers. Third, we examine post-succession performance using propensity score matching. Succession from elderly to young managers is shown to have positive effects on sales, employment, assets, return on assets, capital investment, and cash holdings. These results imply that succession improves firm growth. Furthermore, young successors tend to accumulate cash holdings implying that they are more risk averse and/or face tighter credit constraints than their predecessors.