(Chen & Hsu, 2009)
that investors should pay more attention to a firm’s ownership
This article makes three major research contributions.
First, most previous studies have mainly focused on
ownership structure (P. M. Lee & O’Neill, 2003) or ownership
types (Tribo et al., 2007) to examine their effects on R&D
investment but not on family ownership. Motivated by the
family firms’ acknowledged role in promoting technological
innovation and economic development and the paucity of
research on their effects on R&D investment, this article
represents one of the first major efforts to explore the effect
of family ownership on R&D investment.
Via their
ownership, family members can use certain control rights
to exert influence over organizational decision making
(Carney, 2005).
By introducing family ownership as an
explicative element that has different peculiarity and
resource endowment, the results of this study usefully
extend the current understanding of the ownership–R&D
relationship.
Third, most prior research has primarily focused on Western
countries to analyze the ownership–R&D relationship,
ignoring cultural dissimilarity such as the fact that Chinese
culture may significantly affect ownership influence and
business activities (Gatfield & Youseff, 2001).
Chinese
corporate culture deeply influenced by Confucianism
promotes paternalism and collectivism, which in turn
contribute to Asian business relations.
https://www.hofstede-insights.com/
informal family influence is more powerful than formal
authority in Chinese family firms because family members
often serve as CEOs and top managers (W.-H. Tsai et al.,
2006; Yen, 1994).
The results also suggest two investor recommendations.
First, investment in R&D is central to innovation. The
results of this study indicate that family ownership is
negatively associated with R&D investment, thereby
implying that a high level of family ownership may restrain
R&D investment. This in turn may impair the firm’s longrun
success and minority shareholder gains, which suggests
types and/or structure when they select investment targets.
This article provides various opportunities for further
research. One avenue of research would be to investigate
the corporate governance of other ownership structures,
such as small and medium enterprises or closely held firms.
It would also be useful to further examine the impact of
board characteristics, such as tenure, education, and
shareholdings, on family firms’ corporate decision making.
Furthermore, the findings are based on the unique context of
firms in Taiwan; other useful studies could be undertaken in
East Asian countries to compare the results to those reported
here. Moreover, further research could use more fine-grained
measures of R&D investment, such as different types of
R&D (e.g., product or process, high or low technology, and
internal or collaborative), if such data are available.
On the other hand, such a finding could
possibly mean that because of the close monitoring of
innovation activities, family managers use R&D more
efficiently. Namely, because family managers are owners as
well as managers of the firm, they may invest only as much
in R&D as is necessary for innovation rather than spending
too much. This study mainly focuses on the impact of
family ownership on R&D investment, and thus further
research may use fine-grained analysis to work on whether
and how family managers efficiently invest in R&D.
(Chrisman & Patel, 2012)
For the groups of family firms with lower likelihood of
transgenerational transfer intent, the relationship between family
ownership and R&D investments was negative for family firms with
(a) nonfamily CEOs (model 1: 0 = -0.07, p < .01); (b) founder
CEOs and no other family member involved in the TMT (model
2: 0 = -0.06, p < .01); and (c) later-generation CEOs and no other
family member involved in the TMT (model 3: 0 = -0.05, p <
.05).
However, as theorized, there is a positive relationship between
family ownership and R&D investments for family firms with (d)
founder CEOs and at least one other family member in the TMT
(model 4: j3 = 0.09, p < .01); and (e) later-generation CEOs and
at least one other family member in the TMT (model 5: /3 = 0.10,
p < .01).4 An analysis using a 10 percent ownership thresh old
yielded consistent results
the behaviors of family firms are more heterogeneous than those
of nonfamily firms.
First, we use the logic of myopic loss aversion (Benartzi &
Thaler, 1995; Thaler et al., 1997) to enrich the behavioral agency
model.
Myopic loss aversion suggests a negative re lationship between
the extent of the period of eval uation of a decision and the risk aversion of
deci sion makers. Combined with the knowledge that family firms'
goal sets, which can include noneco nomic family goals, are often
broader, and that family owners and managers have greater
discre tion to behave idiosyncratically, a myopic loss aversion
perspective helps explain why family firms tend to gravitate
toward the extremes in terms of their investments in R&D.
Theoretically, understanding when and why family and economic
goals may converge or diverge is both novel and important. For
exam ple, when long-term family goals dominate, family owners and
managers may be more likely to behave as proactive stewards and
follow consistent strate gies over time that are good for both
family and firm. By contrast, when short-term family goals
dominate, family owners and managers may be have as reactive
agents, opportunistically investing or not in long-term projects in order
to promote and preserve their own economic and affective inter
ests.
family owners and managers who attach more im portance to
long-term family goals are liable to be more willing to make risky
long-term investments in their firm. Thus, our findings, in
accordance with the myopic loss aversion framework, suggest that
the presumed long-term orientation of family firms (James, 1999;
Le Breton-Miller & Miller, 2006)
Strategic decisions could be particularly suscepti ble to the influence
of risk aversion versus risk seeking, or long-term versus short-term
orienta tions resulting from governance systems that reflect a variety
of economic and noneconomic goals.
(Schmid et. al., 2013)
This positive effect of fam-ily management is not supported by most of the
prior empiricalevidence (e.g., Block, 2012; Miller et al., 2011).
For family control, we find a negative coefficient in all models. Thisis in line
with prior empirical results (e.g., Munari et al., 2010) andprovides some
evidence in favor of hypothesis H2a, which postu-lates that family
shareholders lead to lower R&D levels.
In sum, firms that are managed by the founding family seemto have a longer
investment horizon, leading to more R&D spend-ings. By contrast, this holds
not true for firms that are only ownedby the founders or their families, but
run by outside managers.
Interests between family owners and professional managers areless aligned
as for firms in which the managers belong to thesame family, fostering
agency conflict I. Thus, we speculate thatthese external managers are more
prone to short-termism. Forexample, they might forgo R&D investments that
provide bene-fits only in the long-run in order to maximize short-term
profitsand secure their top-management positions. For example, Kaplanand
Minton (2012) provide evidence that bad stock market perfor-mance
increases the likelihood for a CEO turnover.
active managementrole of the family has a positive impact on R&D. This
effect is,however, much stronger for founders if compared to other non-
founder family members.
We hypothesize that founderswho are represented in the supervisory board
have a stronger influ-ence on the managers than other non-founder family
members.
Family Family Family
control management Supervision
the level of (reported)R&D expenditures decreases in firms with an active
managementrole of the family as the corporate opacity index increases.
Theinteraction of the opacity proxies with family management in mod-els Ia
to Id is always negative. It is significant at the 5% level inall models except
model IIb (analyst forecast error). Thus, theseresults provide strong support
for hypothesis H5 which postulatesan under-reporting of R&D in family
managed and/or owned firms.
Family management has a positive impact on R&D. However,family managed
firms decrease the level of reported R&D if theiropacity increases. This effect
is mainly present among firms withfinancial constraints.
posi-tive family management effect is even stronger for R&D
intensiveindustries.
(Choi et. al., 2015)
The impact of collinearity
was investigated using a variance inflation factor (VIF) for each variable
in the OLS regressions corresponding to the estimation models
appearing in Table 2. All of the variables, including the three-way
interactions, show acceptable VIFs. For example, in Model 6 (OLS) of
Table 2, the mean VIF value of the variables is 1.67, ranging from 1.09
to 2.39. Further, the highly correlated total affiliates and business group
membership variables are not entered in the same regression equation.
Thus, multicollinearity is not a serious problem in the analyses.
Growth opportunity and family ownership are jointly related to R&D
intensity.
the significant positive relationship between family ownership,
growth opportunity, and R&D intensity is
weaker for business group affiliates.
the influence of family ownership on
R&D investment is positively moderated by growth opportunities, but
this relationship is not the samein all firms. That is, the influence of family
owners exploiting growth opportunities through R&D investment is
weaker in large family business groups where family control is more
secure.
Business group
affiliates may gain similar benefits from group membership because
they can obtain more complementary resources from and achieve synergy
with their affiliates (Chang & Hong, 2000; Chang et al., 2006;
Khanna & Rivkin, 2001).
managers of family
owned businesses search more diligently for growth opportunities
and strive to achieve the best possible performancewith internal capital
(Brush, Bromiley, & Hendrickx, 2000)
family ownership positively moderates the relationship
between financial slack and R&D investment in Korean firms (Kim,
Kim, & Lee, 2008), but this effect may be weakened when business
group affiliation is considered.
The findings of this study may have implications for the positive relationship
postulated in agency theory between insider ownership and
R&D investment/risk taking (Amihud & Lev, 1981; Hill & Snell, 1988;
Johnson, Hoskisson, & Hitt, 1993).
They argue that if a significant portion of an insider's
wealth is concentrated in a single company (as is the case with insiders
holding substantial equity), the insider may find it undesirable to increase
risk taking with respect to that company (Wright et al., 1996).
(Bullon & Bueno, 2011)
Family firms may have a key effect on strategic decisions such
as R&D investments. Attitudes and values within family
firms differ from nonfamily firms (Memili et al., in
press). Thus, specific features of family governance may
either positively or negatively affect R&D intensity.
family continuity or maintaining family ownership and
control are relevant in this respect. In essence, the
aforementioned negative aspects associated with family
governance (agency costs, risk-taking behavior, etc.)
may offset any positive impacts on R&D investments in
these companies.
(Hou et. al., 2017)
Companies have less R&D investments when the companies are more
politically connected to the government, but
more R&D investments if the political connection of the company ismore
associated with deputies or CPC/CPPCC members.
The obtainment of qualification for CPC/CPPCC political connections is more
symbolic. In China, the chairmen
or general managers of non-state owned companies with excellent
performance are qualified to be elected as deputies to the National
People's Congress or members of the Chinese People's Political Consultative
Conference.
Although corporate innovation requires massive investment in research and
development
and has negative effects on a firm's profitability in its early stages, it can
enhance its core competitiveness and improve business
performance from a long-term point of view (Hsu, 2009; Nanda and Rhodes-
Kropf, 2013). The evidence shows that politically
connected firms have lower levels or efficiency of corporate innovation.
In order to obtain and keep political connections, the costs of rent seeking paid
by companies can crowd
out innovation input or R&D resources and investments, therefore, impede
corporate technological innovation.
In order to cater the requirements of local government for the local economic
development and other strategic objectives, politically
connected companies may need to scarify their long-term development
capacity and focus on short-term goals. For example,
local officials have the pressure on their performance being assessed according
to the local economic growth rate and unemployment
rate (Jia and Nie, 2017). This requires politically connected firms pay more
attention to raising short-term production levels and
taking more local surplus labors. These issues can consume firms' limited
resources, result in inadequate investment in corporate
innovation or low input-output ratios and deter corporate long-term innovation
capabilities. As a compensation, local government
gives more subsidies to politically connected companies with these political
burdens. Appendix 3 examines the relationship between
corporate innovation, political connections and government subsidy. Subsidy
is government subsidy to the firm in a given year.
According to the results, the coefficients of Subsidy are statistically negatively
correlated to patent variables, which is the same as the
coefficients of the interaction term Political ∗ Subsidy. These findings indicate
that the number of patent applications decreases in the
future when politically connected firms receive more government subsidies
with political burdens currently.
(Wang et. al., 2018)
the better the
company's performance, the stronger the financial intensity and the
greater the investment in R & D
With regards corporate
governance, CEO share-holdings (MSH) and R & D intensity
(R & D) are positively correlated and significant, indicating equity incentives
for private enterprise executives positively influence innovation.
However, family firms may be more opaque than their
non-family counterparts (Anderson et al., 2009).Thus,
they might either avoid disclosing their R&D activities in
their financial statements or report conservative
figures, for example by assigning R&D related
expenditures to more general accounts. This potential
“under-reporting” cannot be observed if publicly
available accounting figures are used.
According to P. M. Lee and O’Neill (2003), cultural
dissimilarities between nations may lead to the differing
relationships between ownership structure and R&D
investment.
Miller and Le Breton-Miller (2005) also argued that
managers of family firms tend to invest more in R&D
for the long run.
Family firms may foster unique types of human and
social capital. Family firms are interested in investing
time and money in potentially sustaining associations
(e.g., customers, suppliers, and capital providers) that
provide access to resources (Miller & Le Breton-Miller,
2005). These resources can come from private parties or
government. For instance, building close relationships
with financial institutions may facilitate access to
financial capital (Miller & Le Breton-Miller, 2006). In
sum, investments in human and social capital are likely
to increase investment in R&D.
Indeed, the discretion to behave idiosyncratically and the
pursuit of a unique and potentially varied set of family
goals both suggest that family firms are likely to be more
heterogeneous than nonfamily firms (Benned sen et al.,
2010; Gómez-Mejía et al., 2007).
Similar with FFCD, family member in the top
management can have a voice in R&D investment,
consistent with Chrisman and Patel (2012) arguing that
family firms with a founder or later generation CEO and
at least one family member in the top-management show
higher levels of R&D.
This study uses the behavioral agency model and myopic loss
aversion framework to investigate the variability in the behavior of
family firms.