The Effect of Family Involvement on Innovation Outcomes

The Effect of Family Involvement on Innovation Outcomes

The Effect of Family Involvement on Innovation Outcomes: The Moderating Role of Board Social Capital

David Bendig, J. Nils Foege, Stefan Endriß and Malte Brettel

Originally published: March 16, 2020 (PDMA JPIM • Vol. 37, Issue 3 • May 2020)
Read time: 45 minutes

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Innovation is an essential and yet puzzling part of family firms’ strategic focus. While family firms are generally characterized as conservative regarding their research and development (R&D) activities, researchers have recently argued that family firms can still achieve innovation‐based competitive advantages. Seeking to understand the link between family influence and the outcomes of innovation, we suggest that it is necessary not only to observe the depth of family involvement, but also to differentiate between technological inventions and market innovations. We further posit that the board members’ social capital constitutes an important contingency for this link. We, therefore, investigate the relationship between family involvement and two different outcomes: the number of the firm’s inventions and the market relevance of innovations. Our analysis of S&P 500 firms comprises 1.85 million patents and manual evaluations of 1774 product announcements. The results of our estimations suggest that family involvement is negatively related to the number of inventions and positively related to the market relevance of innovations. They further show that internal and external board social capital moderate the relationship between family involvement and the number of inventions. This study adds to the discussion about family firm innovation by using socioemotional wealth to explain heterogeneity in innovation patterns and revealing that relational resources derived from board social capital are crucial boundary conditions for families’ influence on technological inventions. Taken together, it works toward a more holistic view of innovation in family‐influenced firms.

Practitioner Points

  • Firms with active participation of owner family members in organizational decision‐making through voting rights tend to pursue fewer inventions in the form of patents.
  • Board members with strong internal bonds and strong external networks can help firms to counteract this drawback.
  • Family members’ influence can lead to efficient innovation processes that result in products that are relevant from a market perspective. Non‐family shareholders in family firms can derive that empowering family members with customer knowledge helps to realize a market‐friendly innovation portfolio.

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