Dispersion of Family Ownership and Innovation Input in Family Firms

Abstract

Innovation is an investment in future growth and development, and it is critical for family businesses to maintain a competitive advantage. Different types of innovation inputs have different uncertainties, advantages, and risks. Product innovation and process innovation are two distinct types of innovation that necessitate significantly different organizational resource allocation and risk taking. Ownership is the source of decision-making authority, and the dispersion of intra-family ownership influence goal preferences, risk taking, and resource allocation. We investigate the effect of intra-family ownership dispersion on the decision preferences of two unique types of innovation inputs by distinguishing between product and process innovations. The greater the concentration of ownership within the family, the more likely it is that the proportion of product innovation input is higher than the proportion of process innovation input. We further discuss the moderating effects of both the proportion of family directors and collective decision-making mode on the different innovation input decisions by family firms. Using a sample of 882 Chinese small- and medium-sized family firms from the 2015 All-China Federation of Industry and Commerce, we find support for these proposed relationships. The implications of these findings extend to both family business and innovation research.