A Study on the Relationship between the Second-generation Involvement Time and Family Business Innovation Investment

Abstract

This paper takes the listed family firms in China’s manufacturing industry from 2008 to 2017 as the sample, and uses a multiple regression method to study the impact of the second-generation involvement on the innovation investment of family firms. Based on the social emotional wealth theory and the perspective of legitimacy, and after considering the effect of the second-generation’s multiple goal orientation over time, this paper finds that: (1) Compared to the second-generation that has been involved for a long time, the second-generation that has been involved in the early stage is more inclined to improve the innovation input of family firms, that is, as the time of the second-generation involvement increases, the level of family business innovation investment will decrease. (2) The second-generation’s work experience outside the firm promotes family business innovation investment, that is, the outside work experience weakens the negative relationship between the second-generation involvement time and corporate innovation input. (3) The involvement of family members in TMT hinders family business innovation input, so the involvement of family members in TMT enhances the relationship between the second-generation involvement time and corporate innovation input. (4) The performance gap plays a certain role in the above-mentioned relationship. The performance gap limits the autonomy of the second-generation. Family firms will prefer risk aversion when facing the performance gap, which weakens the positive impact of the second-generation work experience on corporate innovation investment, and enhances the negative impact of the involvement level of TMT family members on corporate innovation investment. By considering the time effect of the second-generation involvement, this paper integrates the dynamic choice preferences of the second-generation goal paradox, and reconciles the inconsistent conclusions about the impact of the second-generation involvement on corporate innovation investment in previous studies. This paper also supplements the study of the second-generation individual-level goal paradox of family business, integrates the dynamic variability of the second-generation goal over time, and explains from a new perspective why the level of corporate innovation input will vary. The changes in the second-generation involvement time further enrich the successor decision-making research in the context of succession. This research provides ideas for succession training and planning for the succession period, helps to further understand the second-generation goals and decision-making preferences, and also provides enlightenment for external investors to predict family business behavior during the succession period.