Family firms and technology innovation: Testing competing hypotheses
Description
We study how different aspects of family ownership and control influence technological innovation within firms. Prior literature has primarily drawn on principal–principal agency theory and stewardship theory to explain the impact of family involvement on strategic decisions and firm outcomes. Arguments rooted in stewardship theory and the institutional voids framework suggest a positive influence of family control and business group affiliation on technological innovation. In contrast, principal–principal agency theory predicts a negative influence. Drawing on these competing theoretical perspectives, we examine how family involvement in ownership, management, and the board of directors—as well as business group affiliation—affects firms’ R&D investments and patenting outcomes. The hypotheses are empirically tested using a seven-year panel of 172 firms from the Indian pharmaceutical industry. The results broadly support the predictions of stewardship theory and the institutional voids framework, rather than those of principal–principal agency theory. Specifically, we find that family shareholding and family control over the positions of CEO and chairperson positively influence firms’ investment in R&D. We also find that business group affiliation has a positive effect on both R&D investments and the number of patents filed. We attribute these positive effects to the high level of technological opportunity in the Indian pharmaceutical industry. Furthermore, we argue that greater technological opportunities reduce agency costs and foster stewardship behavior, which in turn promotes innovation in family-controlled firms.
Copyright Date
January 2012
Publication Date
1-1-2012
DOI
10.5465/AMBPP.2012.14396abstract
Keywords
Entrepreneurship, Family firms, Family business, Innovation, Technology innovation, Pharmaceutical industry
Conference
Academy of Management Annual Meeting, 3-5 August, 2012, Boston
