Born to Rebel? The Owner Birth Order and R&D Investments in Chinese Family Firms
Wen Helena Li, Jin-hui Luo, Marco De Sisto, and Timothy Bartram
kHUB post date: June 10, 2022
Originally published: May 29, 2021 (PDMA JPIM • Vol. 38, Issue 4 • July 2021)
Read time: 45 minutes
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Family background has a significant impact on family firms’ strategies such as innovation investments. Going beyond prior studies that exclusively focus on how family governance and management factors determine research and development (R&D) investment decisions, this study investigates a family science factor: family firm owner's birth order, defined as the relative rank of the owner in terms of the age hierarchy among siblings in the family. Joining the family niche model of birth order and socioemotional wealth perspective, we propose that later-born family firm owners tend to be risk-takers and invest more in R&D projects compared with their earlier-born counterparts. We further examine how the two other powerful decision-makers within family firms (i.e., chairperson of the board and CEO) enable or constrain the owner's birth order–R&D investment relationship. We contend that the positive birth order impact on R&D investment is weaker when a family member is the chairperson of the board, while such a relationship is stronger in the presence of owner–CEO duality. We confirm our hypotheses using a sample of 605 firm-year observations from Chinese-listed family firms between 2006 and 2014. This study demonstrates the important impact of family science factors on innovation heterogeneities, which is understudied in the family firm innovation literature.
Practitioner Points
- As a result of birth order, family firm owners experience family relationships in dissimilar ways and develop different dispositions and tendencies that will have an impact on how they make decisions in adulthood, including innovation investments.
- First-born owners in family firms are more conservative about R&D investments, whereas later-born owners are more likely to be active innovators.
- In family firms, family owners, family board members, and family executives shape the firm's innovation investments. When later-born owners are also the CEOs of the company, they can exercise more freedom to authorize R&D projects to enhance investment in innovation. In contrast, when a family member is the chairperson of the board, it will constrain later-born owners to invest in innovation projects.